CD rates plunge after the Federal Reserve’s latest rate cuts

Red percent sign with downward arrow

We recently told you to say goodbye to 5% CD rates. Now 4% rates are going the way of the dinosaur.

Since the Federal Reserve's recent rate cuts, you'll no longer find the lucrative returns we've enjoyed the past couple of years.

The rate-cut spree by the Fed means you'll have to do some shopping to find CDs paying as much as 4%.

If you have money to put in a CD, do it today. Check our extensive database of the best CD rates and lock in the highest rate you can find.

Favor one- or two-year CDs over shorter-term deposits because rates are expected to keep falling throughout the spring and summer.

Don't get discouraged and stash your cash in a checking, savings or money market account, waiting for rates to rise.

Those accounts are almost always variable-rate investments. They're already paying less than CDs and their rates will continue to decline for the foreseeable future.

The Federal Reserve isn't driving interest rates down because it thinks you're making too much on your savings. It's just trying to prevent the mortgage crisis from plunging the country into a recession.

Too many homeowners -- particularly those with poor credit and expensive adjustable-rate mortgages -- are defaulting on their loans.

Those losses have panicked many of the big institutional investors that provide billions of dollars a year for home loans, resulting in a dramatic drop in the amount of money available for mortgages.

With home sales and prices falling in many parts of the country, economists fear that tight credit and reduced consumer spending could be the final straw.

The Federal Reserve can help because it acts as the nation's super bank, lending money to all the commercial banks we deal with every day. When the Federal Reserve lowers rates, banks can obtain the money they need for consumer loans more cheaply. And since September the rate has fallen from 5.25% to 3%.

That allows banks to charge less for loans, encouraging us to borrow and spend more. This keeps the economy growing since two-thirds of our gross domestic product depends on consumer spending.

Unfortunately all of this also means leaner profits for the savers who fund those loans through their deposits.

With interest rates dropping like rocks, you've got to shop around for the best deal every time one of your CDs matures. Don't sit back and let a bank roll your money over into a new CD that's doesn't have the best interest rate available.

You must be ready and willing to move your money to a bank across town, across the country, or across cyberspace.

Online banks are just like their brick-and-mortar cousins, except they don't have branch offices. All transactions are done electronically using your computer or an ATM machine, the phone or the good old U.S. mail.

Since they're relatively new they offer better rates to get noticed and persuade consumers to give them a try. That's why you'll find them offering most of the top rates on our national comparison charts.

Signing up is easier than you might think and the federal government insures your deposits, just like it does at most other banks. Just be sure the bank is FDIC insured.