CDs take a tumble after Fed lowers rates

Crumbling bank facade

Interest rates are going down and it's harder to find the kind of lucrative CDs we've enjoyed over the past couple of years.

That's because the Federal Reserve Board moved to push interest rates on consumer loans and deposits down half-a-point on Tuesday.

The previous week more than 40 banks in our nationwide database were offering 5% or more on a one-year CD. Nearly that many were paying the same great rate on two-year CDs.

Just a couple of days after the Fed acted only eight banks were offering 5% or more on a one-year CD and just five were paying that much on two-year CDs.

What's worse, many economists think the Fed could lower interest rates another quarter-point in October and December.

That means anyone with money to invest this fall should buy the best-paying, long-term certificate of deposit they can find -- at least 12- to 24-months.

Our listings of the best CD rates is a great place to look and compare what local and national banks are offering.

Jump on any one- or two-year CD paying 5% or more.

Savers have enjoyed such lucrative rates for almost two years. But we don't think they'll last much longer.

In fact, we know they won't last if the Fed lowers rates again.

The Fed isn't doing this because it thought you were making too much money on your savings.

It was concerned that borrowers were paying too much for consumer loans, particularly mortgages.

The financial and housing markets are in turmoil because so 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 already falling in many parts of the country, economists warn that tight credit could be the final straw that pushes the economy into a recession.

The Fed can prevent that because it acts as the nation's super bank, lending money to all the commercial banks we deal with every day. When the Fed lowers rates, banks can obtain the money they need for consumer loans more cheaply.

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

Lower interest rates will also mean lower monthly payments -- or at least smaller increases in monthly payments -- for millions of homeowners with adjustable-rate mortgages.

Unfortunately, that will mean leaner profits for the savers who also fund those loans through their deposits.

With interest rates going down, 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 not earning top dollar.

Let's say you have $5,000 to invest. You'll make $191 on a 12-month CD that pays a very average rate of 3.75%. You'll make $269 on the same CD paying a top yield of 5.25%.

Can you afford to throw that $78 away?

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 have to 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 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.