CD Rates Set to Move Higher in 2015
higher CD rates for years now. Recently a handful of banks have increased the rates they pay on certificates of deposit but the majority of banks haven't increased rates. CD Interest rates have been so low for over 5 years now the prospect of higher rates is much anticipated.
Well, the stage has finally been set for an increase in CD rates sometime in 2015. Although first quarter GDP contracted 1 percent due to the cold, harsh winter, the economy is expected to rebound sharply in the second quarter. GDP growth is expected to remain in the 3 percent range to 4.00 percent range throughout the rest of 2014.
When economic growth is strong and employment is strong, the FOMC usually increases the interest rates they control. When the Fed increases these rates, banks and credit unions follow by increasing interest rates on deposit products. This is good news since the majority of banks won't increase CD rates until the Federal Open Market Committee (FOMC) increases their key benchmark interest rate, the federal funds rate.
In December 2008, the FOMC voted to lower the fed funds rate to a range of zero percent to one quarter percent. This policy has sent interest rates on deposit accounts down to record lows. In the FDIC's most recent National Rate Survey, average 1 year bank CD rates were at 0.12 percent. This week's survey also has the average savings rate at 0.06 percent and the average money market rate at 0.08 percent.
With deposit rates so low, your investments are not even keeping up with the pace of inflation. The current inflation rate for the past 12 months ending in April is at 2.00 percent (Bureau of Labor Statistics's CPI Report). If you're retired and need to keep your principal 100 percent safe, investing in equities isn't an option.
While the average 1 year bank CD rate is at 0.12 percent, there are several 1 year CD rates at banks over 1.00 percent. It is important to search for and find the best CD rates available. We have complied a list of banks that are offering the highest 1 year CD rates right now.
Highest 1 Year CD Rates May 31, 2014
The best 12 month CD rates are at 1.00 percent right now, but by the end of 2015 rates will be higher. There are different forecasts on where the fed funds rate will be by the end of 2015. On the high end, forecasts are for a fed funds rate near 3.00 percent which would send 1 year CD rates above 3.00 percent and as possibly as high as 4.00 percent.
Since rates are moving higher next year, we recommend staying invested in shorter term certificates of deposit so you can take advantage of higher rates sooner than later.
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