5 Year CD Rates and 10 Year Bond Rates Now Over 3.00 Percent
Since early spring this year, long term bond rates have been moving higher while long term CD rates started moving higher late in 2013. Initially, bond rates moved higher on the prospect of the Federal Reserve tapering their purchasing of long term bonds and mortgage backed securities. These purchases have artificially suppressed interest rates to spur economic growth.
Some banks and credit unions finally started increasing their rates, most likely in response to long term bond rates moving higher. Bonds rates and certificate of deposit rates are not intertwined, but both usually move higher or lower in tandem. Rates are more dependent on the economy, inflation, and most importantly, whether or not the Federal Reserve is increasing or lowering the federal funds rate.
10 Year Bond Rates Move Above 3.00 Percent
The Federal Reserve didn't slow their purchases at all this year but long term rates never dropped back to the lows of early 2013. In December's Fed meeting, the Fed Committee members voted to start tapering from $85 billion a month in purchases to $75 billion a month, starting January 2014.
As a result of this announcement, 10 year bond rates continue to rise and are currently at 3.01 percent, almost doubling from the low of 1.66 percent set in May of 2013. This is the highest point for 10 year rates in over 2 years and rates will continue to move higher in 2014.
5 Year CD Rates Increase, Best 5 Year CD Rate at 3.04% APY
Earlier this year, the best CD rates on 5 year certificates of deposit were around 1.50 percent and rates have finally started moving higher. Just about three months ago, we started seeing a handful of banks increase their 5 year CD rates above 2.00 percent. While a .50 percent increase is small, it's still a relief to finally see higher CD rates after many years of lower and lower rates.
Last month a credit union outdid any bank on our rate list by increasing their CD rate above 3.00 percent. Pentagon Federal Credit Union (PenFed), increased their 5 year CD rates to 3.00 percent with an APY of 3.04 percent. PenFed also increased their 7 year CD rates to 3.00 percent with an APY of 3.04 percent.
2014 Forecast for Bond Rates and CD Rates
Long term bond rates will move higher in 2014 as the Federal Reserve slowly tapers their purchases until the purchasing ends, which they announced will happen at the end of 2014. Current 10 year bond rates, which are near 3.00 percent will probably end 2014 somewhere between 4.00 percent and 5.00 percent.
Long term CD rates will also move higher in 2014 but not to the same levels as 10 year bond yields. Some banks and credit unions will increase 5 year CD rates to the 4.00 percent range while average 5 year rates will remain much lower, around 2.00 percent to 2.50 percent.
Shorter term CD rates will see some increases, but overall rates will remain near current levels until the Federal Reserve increases the federal funds rate, most likely not until 2015.
The highest CD rates on 1 year certificates of deposit are just above 1.00 percent right now. Next year, the highest 1 year rates will move above 1.50 percent and possibly as high as 2.00 percent, depending on where growth is throughout 2014.
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