Bad CD rates force US investors to buy stocks
Friday, February 26th, 2010
Mortgage rates in the US are low, so low in fact that some rates are even available at a 5% fixed for 30 years. However on the opposite end there is the US investor who wants to park their cash somewhere and is getting an ultra low 1.4% for a year or .99% for 6 months.
On the other side of the world in Australia the bank deposits there can get a fixed 6% return. The country never went through an actual recession in the global financial crisis (it just missed out on 2 quarters of negative growth). So while there are many differences between the policies that contributed to both situations I want to highlight the actual differences in the rate of return on investment for bank deposits.
An Australian investor has a choice in choosing between various asset classes similar to the US including; cash, stocks (shares) and property investment. So being virtually guaranteed fixed rate returns of 6% for a cash deposit they have the assumption that to achieve a higher rate of return they would need to incur more risk. Some decide to invest in the stock market (share market) as a way to increase their rate of return but includes a lot more risk. Others such as retirees can happily live off the certificate of deposit (term deposit) for there retirement.
Unfortunately US investors and retirees do not have that luxury to avoid taking risks and investing in cash or a cd. So while eventually interest rates will go up they are in the unfortunate position of taking on risk to attract even a 4-5% return.
So while other countries in the world have investors who are being compensated for their cash in the bank, the US citizen on the other hand is getting a bad deal.
Article by James Jones
The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com
Tags: bank deposits , cd rates , stocks , us investors
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