SAN ANSELMO, Calif.-Certificates with terms of three or more years and less than $100,000 are the most sensitive to the Fed effective rate according to new analysis from Market Rates.
According to the research firm, the balances for such CDs tend to go up as the Fed rate moves down and vice versa. In March 2004, with the Fed rate pegged at 1%, the national balance for these certificates was $70 billion. Nearly three years later, in Dec. 2006, when the Fed rate was 5.25%, the balances had dropped to $41 billion.
When the rate plunged to .12% in Dec. 2009, balances in these types of CDs had soared to $104 billion.
"Now is the time for institutions to start developing rollover and conversion plans for this type of CDs," Dan Geller, EVP at Market Rates Insight said in a statement. "It is inevitable that the Fed will increase its rate at some point, and when this happens, institutions should expect to lose about 10% of this product's balance for every 1% increase in the Fed rate."
