Current State Of The Market For FDIC-Insured Savers – May 2011

Looking for an FDIC-insured investment vehicle to stash some spare cash this year? If so, don’t expect much of a return on your investment.

If you’ve been in the market for one of these products for while this will certainly come as nothing new. Since the interest rate peak of CD rates just prior to the financial meltdown of 2008, it’s seemed like an all-out foot race to the bottom. Where banks and credit unions were regularly providing 6% APYs on 12 month CD’s just 3 years ago, those same banks and credit unions are now struggling to cough up just 0.50% APYs on the same products.

Like most savers, we’ve been wondering when we can expect to see light at the end of the tunnel. And unfortunately it seems we’ll remain in the dark a while longer. 

At the end of last month, Fed Chairman Ben Bernanke addressed this issue head on by speaking to the press directly about his interest rate decision – which was the first time in our central bank’s 98-year history in which that has happened (according to ABC News). And while many analysts touted this speech as the turning of a new leaf in regard to transparency for the US central bank, the outlook Bernanke laid out for savers left little room for optimism.

For the near term, what can savers do with funds intended for FDIC insured investment accounts?

We’d recommend thinking outside the box when searching for a federally insured account to stash your cash. A good place to start would be with your local credit union. Unlike banks, credit unions are not-for-profit, member-owned institutions that pass along any profits rendered from their business operations back to their members in the form of higher savings rates and lower loan rates. They also come with NCUA insurance (the FDIC equivalent for credit unions) which also covers deposits up to $250,000. Credit Unions can be tricky to join however as they usually have membership restrictions based on place of residence, employment, and/or worship.

If you’re unable to find a credit union, you may want to consider an online bank. Because of the lack of overhead expenditures associated with these institutions, they can sometimes offer APY’s which beat the current national average(s) by significant margins. For additional information, check out our best online savings accounts of 2011.

Another increasingly popular option would be to search for a more creative FDIC-insured product. And one that has gained much attention during our current savings rate woes has been the “rewards checking account.” These accounts currently offer APY’s between 2 and 4 per cent but require consumers to fulfil some monthly obligations. The obligations vary with each institution but generally consist of 1) setting up a recurring payment from the account 2) making a certain amount of debit card (non-cash withdrawal) transactions each month 3) signing up to receive e-statements.