After Two Months, CD Rates Move a Bit

The average rate paid on 5-year certificates of deposit (CD) rose a bit last week — after two months of stagnation – according to RateWatch. Is there hope for savers?

RateWatch said that its weekly survey discovered that the average APY paid on 5-year CDs across the country rose from 1.14% to 1.15%. However, rates on shorter-term CDs stayed the same.

The reason for the move on 5-year CDs – and not on 1-year or 6-month CDs – has to do with recent signals sent by the Federal Reserve. While the Fed has basically pledged to maintain its low-rate regime for the near term, it has signaled that it might raise its benchmark interest rate in the first half of 2015.

Anticipating this, financial institutions are trying to “lock in” more long-term funds from depositors.

As you can see, though, the move in rates is tiny, and the overall picture pretty much stays the same: savers who want secure, insured investments are stuck with sub-2% yields for the foreseeable future.

Until the Fed signals a more dramatic move on rates, things will continue in this fashion. Savers who want a good return on their money will opt for riskier investment options, such as stocks.


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CD Rates Stagnate for Seventh Week


Savers who were hoping for some higher yields on CDs this summer will have to keep waiting, since rates have been stuck on (very) low for a seventh straight week.

Banking data and analytics service RateWatch said that its survey of CD rates last week turned up an average 5-year CD rate of just 1.14%. The average on 1-year CDs was just 0.36, while 6-month CDs averaged just 0.23%. These numbers haven’t moved in weeks, RateWatch said.

The reasons for this stagnation are rooted in Fed policy, and the pace of the economy so far this year. RateWatch points out that banks aren’t moving on rates since Fed chairman Janet Yellen has indicated that the Fed would continue to target interest rates in the same very low range they’ve been at for years.

Banks simply don’t have to offer you a lot of interest for your money, since they’re getting it for practically nothing these days. The low rates offered by the big banks are reflected down the line by smaller banks and credit unions across the country.

Money is cheap for financial institutions, so there’s little reason to offer more than these tiny amounts on CDs, and other interest-bearing insured financial products.

We’ll see what happens in next week, when the Fed is again scheduled to make a policy statement. Don’t hold your breath, though: it’s unlikely that savers will be getting dramatically higher CD rates any time soon.


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Savers Get No Relief on Rates


CD rates have not changed much in more than six weeks, and are unlikely to rise above their low levels anytime soon, according to a new report from RateWatch.

As of early last week, the national average rate offered on1-year CDs was just 0.89%, according to Bankrate.

RateWatch cites recent moves (or lack, thereof) by the Federal Reserve, which has kept the short-term federal funds rate at a range of zero to 0.25% since late 2008 and shows little indication to change that anytime soon.

There was some speculation earlier this year that the Fed may couple its tapering policy with a move toward higher rates, but RateWatch says that minutes from the Fed’s latest meeting prove otherwise.

In fact, those minutes show that the rulers of the Fed are concerned about a lack of inflation in the economy. Normally, the Fed likes to see rising inflation before they would move to raise rates. Low inflation, (or worse, a thread of deflation), would cause the Fed to lower rates in an effort to speed up economic activity.

Rates have nowhere to go but up, yet the Fed currently sees little reason to move them higher.  As long as this is the case – and capital markets participants agree – savers will not be seeing healthy returns on CDs.


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