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New Market Rates Insight Analysis Reveals Consumers Doubt Near-Term Economic Recovery, Abandoning Short-Term CDs

Latest FDIC figures show that deposits of up to one year, which are yielding net negative returns, dropped $502 billion or 18.4 percent in 2009.

San Anslemo, CA, March 03, 2010 --( A new analysis from Market Rates Insight (MRI,, a leading research firm that tracks rates for deposits, loans, and fees for financial institutions, shows that short-term deposits of up to one year declined from $2,729 billion to $2,227 billion during 2009, a decline of $502 billion, or 18.4 percent. The decline in short-term deposits is despite the fact that total deposits in domestic offices at FDIC institutions grew from $7,540 billion to $7,697 billion during the same time period, an increase of $157 billion or 2.1 percent. The move away from short-term deposit products shows that consumers have lost confidence in a near-term economic recovery.

A small portion of the decline in short-term balances has shifted to longer-term deposits (over one year), which increased by $54 billion or 10.9 percent during the same time period. The remaining $450 billion of short-tem balances has shifted to liquid accounts, signaling that consumers prefer the flexibility of redirecting their money based on changes in the inflation and/or interest rates.

The latest Market Rates Insight research also reveals that a one-year certificate of deposit that was opened in January of 2009, with an APY of 1.59 at that time, and that matured in December of 2009 yielded a net negative return of -1.13 percent. This means that the buying power of a $10K deposit was reduced to $9,887 when matured in December of 2009 due to high inflation rates, another reason that consumers are avoiding short-term deposit products.

Consumers were clearly anticipating that inflation would rise in late 2009 and early 2010 due to massive liquidity in the market. That reduced the appeal of locking in short-term deposits at relatively low interest rates. It’s important to note that only short-term deposits (up to one year) are on the decline. Deposits of over one year showed a modest gain in balances, which could mean that consumers expect the Federal Reserve to increase the funds rate at some point, which would push deposit rates back up and force inflation rates down. Thus, CDs that will mature in a year or two, when deposit rates are higher and the inflation is lower, are likely to yield a positive return.

“As long as the annual inflation rate is higher than the interest rate for deposits, expect consumers to shy away from short-term deposits, opting instead for longer term deposits with the hope that inflation will go down and interest rates go up,” said Dan Geller, Ph.D. Executive Vice President at Market Rates Insight.

The complete analysis can be viewed on the Market Rates Insight website at this location:

About Market Rates Insight

For more than two decades, Market Rates Insight (MRI) has been helping subscribers price with precision by providing banks, thrifts, credit unions, and other financial institutions with accurate market intelligence on deposits, loans, and fees. MRI uses deposit surveys, mortgage and consumer loan surveys, fee and feature studies, scanned ads, new product alerts, and market share and money fund reports to give subscribers the intelligence they need to profitably react to emerging trends. MRI’s products include customized, web-enabled market research tools that report on rates, as well as online searchable databases, gauges, alerts, and dashboards that aggregate key client data to provide real-time views on how they stack up against market competitors.

Market Rates Insight is located in San Anselmo, California. For more information, see


Dr. Dan Geller
Market Rates Insight

Tom Woolf
Market Rates Insight
(415) 259-5638

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Market Rates Insight
Tom Woolf

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