It was a clean sweep for CD rates last week, with a big broom that swept all major CD categories to fall slightly lower, fueling more frustration among CD investors who have to be wondering: “how low can CD rates go?

The BankingMyWay CD rate tracker tells the story, with five-year CD rates falling from 2.26% to 2.24%, and right on down the line, with four-year CD’s falling from 2.09% to 2.07%; two-year CD’s sliding from 1.59% to 1.57%; one-year CD’s from 1.36% to 1.33%; and six-month CD’s falling from 1.01% to 0.98%.

The long-term view among Wall Street types is that inflation is inevitable, and when it comes, CD rates will rise with it. The “inevitable” portion derives from the incessant federal spending going on in Washington, D.C. right now. It’s a pretty straightforward concept: the more money the government has to spend, the more it relies on traditional tools to raise the cash it needs. For instance, the government is currently increasing the supply of U.S. Treasury issues (essentially using Treasuries to borrow money with the promise to pay investors back with interest). But the more Treasuries out on the market, the higher the likelihood of higher interest rates (historically, when government bond supply increases, so do interest rates).

Perhaps that’s why there is some resistance on the part of fixed-income investors to accept lower CD rates, especially the higher you go up the ladder. The thinking goes like this: why lock yourself in to relatively low five-year CD rates when inflation is bound to kick in and raise rates significantly higher? Better to mix in some maneuverability on the short-end of the CD ladder and have the flexibility to move up the ladder and snag those higher rates when inflation clouds start rolling in.

On the short –term, there is some good news in the form a new bill signed into law by President Obama that provides FDIC insurance protection on bank CD accounts up to $250,000 (the bill is active through 2013). That should inspire more confidence in bank CDs and draw more buyers into the market.

As always, to find the best CD rates in your area, use BankingMyWay’s CD Rate Search.

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