Inflation versus CDs: No contest

Savers with cash in longer-term certificates of deposit are losing out to inflation, according to Market Rates Insight. The annual inflation rate of 3.16% in April topped the best five-year CD rate of 2.4%, according to a report released last week by Market Rates Insight. Inflation was 2.11% in February, surpassing the long-term CD rate of 2.1%. That was the first time inflation had topped the CD rate since October 2008, Market Rates said. “Right now, people are more concerned about the return of their deposits rather than a return on their deposits,” said Dan Geller, executive vice president of Market Rates, a financial data and research company. “People are looking for this one island of safety and security, and insured deposits provide it.” There was $9.4 trillion held in banking deposits as of December, compared with $9.2 trillion a year earlier, according to the Federal Deposit Insurance Corp. The average five-year CD yielded 1.7% and the average one-year certificate yielded 0.45% on May 18, according to Bankrate.com. The highest-paying one-year CD yields 1.4% and is offered by Doral Bank, a unit of Doral Financial Corp. The top five-year CD yields 2.58% and is offered by online bank EverBank Financial Corp., according to Bankrate.com data.

'TRUE RETURN'

“True return is measured in after-inflation terms, because that's your actual buying power,” said Greg McBride, a senior financial analyst at Bankrate.com. “That being said, investing in a CD isn't compensating you for last year's inflation; it's compensating you for next year's inflation, which is unknown.” To get the average 2.4% rate, investors generally have to buy callable CDs, according to Market Rates. Callable CDs are certificates that the issuers can redeem at set periods.