Update: This post is out of date, please check the bank’s website for more recent rates.

The current economic crunch is changing the savings habits of the average American. Certificate of deposit rates have been coming down, but the U.S. savings rate has been going up. The savings rate is now 3.6%, up from 2.8% in November last year. While one year certificate of deposit rates are averaging a low of about 2.0%, a year ago you could find one year certificate of deposit rates of up to 5.0%.

The near record low CD rates are mainly due to the Federal Reserve Bank lowering the Federal Funds Rate ( the interest rate which banks lend their funds deposited at the Federal Reserve to other banks usually overnight) to historic lows. The current Fed Funds rate is targeted between 0% and 0.25%. Also contributing to the low deposit rates on certificate of deposits and savings accounts is the Troubled Asset Relief Program (TARP). Banks are funding their reserves by participating in TARP so they have less of a need to lure depositors with those special high interest promotional CD rates.

The high savings rate is mainly due to the majority of the people opting to save rather than to spend. People are socking away money because they are scared of the current economic crises. With this trend, financial experts expect the saving rate to increase to double digits by the end of the year. It’s interesting to note that at the height of the housing bubble in 2005, the savings rate was negative. If you were a home owner your net worth was increasing by leaps and bounds as the value of your home increased so there was no incentive to save money.

With more people opting to save, the problem is finding a decent interest rate on your savings. One of the better options for your savings is a certificate of deposit. Even during theses trying times, financial institutions and banks are using creative methods to attract cash from depositors. As we stated above the average rate for a 12 month CD is nearing just 2.00%, but there lots of good offers to be found.

Discover Bank is offering $50 for opening a new CD account online. Just deposit a minimum of $10,000 and Discover Bank will add $50 to your account. Offer good until February 28, 2009. To earn the cash bonus, a minimum deposit of $10,000 in new funds must be received by March 15, 2009 and the funds must remain on deposit for at least 90 days. The cash offer will be credited to your Discover Bank account 4 to 6 weeks after the 90-day period.

Another promotional CD rate is being offered by Hudson City Savings Bank. The bank is currently offering one of the best CD rates for a 1 year CD. The current annual percentage yield is 2.75%. The minimum deposit balance requirement to earn the 2.75% APY is $5,000. The certificate of deposit is insured by the Federal Deposit Insurance Corporation for up to $250,000 until December 31, 2009, and then the coverage reverts back to $100,000.

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