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The current state of the economy is to blame as to why high yield CDs are becoming harder to find these days. In general, the interest rate is determined by a slew of factors but the mostinfluential one is the rate set by the Federal Reserve. The Federal Reserve has the responsibility of taking steps to help ensure the stability of our economic infrastructure. One of the tools they utilize is the short-term interest, which gets tweaked according to market conditions. The short-term interest rateaffects the cost it will take banks to borrow money from other banks.When the economy is healthy, interest rates go up to fend off inflation. When the economy is slowing down, like during a recession, the Feds lower the interest rates to stimulate more big business in hopes of a trickle down affect.

Currently the U.S. economy is in a recession and the short term interest rates have been lowered. This is great news for those who are in the position of borrowing money, as the banks are lowering the rates it charges consumers to borrow money. But what is good for the borrower, does not necessarily help the investor as the interest rate for deposits has also been lowered.

High yield CDs are becoming harder to find because the Federal interest rate is at its lowest point and banks cannot afford to pay out too much profit on earnings as they will not be able to properly balance their own books. As the economy steadies, expect to see the options for high yield CDs flourish.

For years diversifying your investments with a high yield CD was an easy tactic for investors. All you would have to do was stroll to your local bank branch or conduct a search on the web for "high yield CDs" and dozens of options with healthy interest rates were quickly provided. However, trying to locate a high yield CD now is more like searching for a needle in a haystack.

If you've purchased certificates of deposit that range from short-term investment periods to long-term, then you're probably at least a little familiar with yield curves. However, being just a little bit familiar can only get you so far if you're interested in being a serious investor.

So instead of continuing your time in the dark, let's take a closer look at yield curves and how they impact CDs. This way, the next time you choose to invest, you'll be able to make truly informed decisions.

What are Yield Curves?

Yield curves define the relationship between short-term interest rates and long-term interest rates when making investments in fixed-income securities. For example, if you're investing in a 6-month CD and a 5-year CD, because certificates of deposit typically offer different annual percentage yields based on the length of time invested, there will be a curve that shows the increase in interest rates from the 6-month investment to the 5-year investment.

The Types of Yield Curves

There are a number of types of yield curves that represent the different turns in interest rates the market can experience. Let's look at what they are, as well as the impact they can have on your CDs:

• Normal yield curves: This represents the short-term interest rate being lower than the long-term interest rate. This means, when purchasing certificates of deposit for 3-months, the interest rate will be lower than those of 5-year CDs.
• Inverted (negative) yield curves: These types of curves represent the opposite of the normal curve. So instead of the short-term interest rate being lower than the long-term, it is higher.
• Flat yield curves: When the normal and inverted yield curves are switching places (one is switching to the other), it will often flatten, showing very similar interest rates between short- and long-term CDs.

Understanding the type of yield curves you're dealing with at any given investment period can help you decide how to manage your certificates of deposit. So if you're thinking of purchasing some CDs, it's good to first see what type of curve we're in.

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