CD Rates in 2012 and Beyond
As we are well into 2012 you have probably noticed CD rates are still very low, in fact current CD rates are dismal. The same can be said for savings account rates and money market rates. We'll if you think 2012 will bring higher rates, think again. The FDIC's current National average 12 month CD rate is 0.31%. I remember when one could receive that rate on a checking account.
Of course you can find CD rates higher than the FDIC's average but don't expect to see rates that much higher. Right now one of the best CD rates on a 12 month CD is from CIT bank at 1.07%, with an APY of 1.08%. You might not think that rate is good but the best CD rates on 1 year CDs are just north of 1.00%. Most banks and credit unions are offering 1 year CD rates at less than 1.00%.
The main factor in keeping rates low on all deposit accounts is the Fed's current policy of keeping the Fed funds rate at zero to one quarter percent. The Fed also said they plan to keep interest rates low until 2014. So these pathetic CD rates will be around for another 2 years.
If you're in the market for a mortgage low rates will probably save you more money and any interest earned on a deposit account. Mortgage rates today on 30 year home loans are averaging 4.05% while current mortgage rates on 15 year home loans are averaging 3.32%.
Yes there is hope savings rates, CD rates and money market rates will increase before than but even if rates do move higher don't expect much. Inflation will have to become a big concern for the Fed to move rates a lot higher. If that does happen you can expect rates to increase dramatically in a short period of time.
The more likely scenario is rates staying low for another year and then we might see gradual increases of one quarter percent in the Fed Funds rate. The Fed Fund’s rate moving slightly higher will translate into bank CD rates moving slightly higher but not in tandem with the Fed's increases.
To sum up we recommend sticking to shorter term certificates of deposit since the yield curve is basically flat between 1 year CDs and 5 year CDs. The highest CD rates on 5 year CDs are just north of 2.00% while the FDIC's National Average 5 year CD rate is 1.12%.
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