12 Month CD Rates Remain Just Above 1.00 Percent as 10 Year Bond Yields Move Above 2.00 Percent
The top 12 month CD rates remain above 1.00 percent as 10 year bond yields move back above 2.00 percent. The increase in long term bond yields is telling for the future direction of bank CD rates, which are near several year lows. 3, 5, 7 and 30 year bond yields have also gone higher in 2013 as a slew of positive economic news is released, the most recent being a positive employment report for February.
The FDIC's National Rate and Rates Cap survey for the week ending March 11, 2013, has 1 year CD rates at banks averaging 0.22 percent, down slightly from the prior week's average rate of 0.23 percent. The best CD rates on 12 month certificates of deposit from GE Capital Retail Bank and Colorado FSB remain unchanged at 1.04 percent with an annual percentage yield of 1.05 percent.
The past six years have been hard for savers who have been dealing with the lowest interest rates in a generation. If you want a higher return, you have to make riskier investments. U.S. Treasuries have yielded less than certificates of deposit and savings accounts. This past Friday, 1 year Treasury yields closed at 0.15 percent, lower than the average 1 year CD rate and many times less the best 1 year rate.
My colleagues and I have been writing about interest rates moving higher and there is a general consensus that rates will move higher sooner than later. Until this year, most of us believed rates will stay low until the end of 2015, the point at which the Federal Reserve stated they plan to keep the fed funds rate near zero percent.
Based on all of the positive economic numbers released in 2013, the end in sight to the federal budget fight in Washington, and the unemployment rate falling to 7.7 percent in February, we believe the Fed will be forced to start increasing interest rates sometime early in 2014. Once the fed fund rates move higher, banks will start increasing CD rates and other deposit rates.
There won't be a dramatic jump in rates unless inflation gets out of hand, which is unlikely. In 2014, 1 year CD rates could move up to the 1.50 percent range, which is about a 50 percent jump from where current 1 year rates are. In the longer term, if the economy picks up more steam and the unemployment rate falls below 5.00 percent, we could see 1 year rates in the 3.00 percent range.
That being said, your best option is to stay invested in shorter term certificates of deposit. If you have a CD ladder in place and you have certificates of deposit coming due over the next year, renew in shorter term certificates of deposit. When rates peak again, start renewing in longer term CD accounts. Interest rates probably won't peak until 2017 which gives you plenty of time to build a new CD ladder.
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