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Economic Distortion

30 April, 2013

When a bank advertises a 0.94% interest rate for a one-year certificate of deposit (one leading financial magazine calling it the “Best One-Year CD”), is there anyone who really believes this is an attractive option? Just to review: On a $10,000 deposit, a 0.94% annual percentage rate will deliver $94 of interest for the year. If a retiree needed an additional $1,500 of monthly income, it would require almost $2 million in principal at these rates to generate the interest.