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Fed Still Uncertain When to Increase Interest Rates
 

Fed Still Uncertain When to Increase Interest Rates

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Federal Open Market Committee officials are still uncertain on when to increase their key benchmark interest rate, the federal funds rate. CD rates and other deposit rates are tied to the federal funds rate so when the rate is increased, deposit rates will also move higher.

The most recent press release by the Fed didn't contain any surprises on when rates will move higher. The most telling statement was the following:
The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

In plain language, the Fed is saying even when they increase the rate, they might keep it lower than would have in the past. This policy makes sense in that the Fed is hedging their bets for the future but not committing to anything. We have seen so many false starts regarding economic growth.

Growth was robust for many quarters until the first quarter of 2015's GDP growth of 0.2 percent, a shocking and disappointing number. Chances are the harsh cold weather most of the country experienced in January and February depressed growth. We should see a sharp rebound in 2nd quarter GDP.

If 2nd quarter growth comes in above 3.00 percent and if job growth is strong in the coming months the Fed will increase rates in June. Weaker than expected growth will force the Fed to wait until later in the summer or until as late as September to increase rates.

Either way, interest rates are moving higher within the next 4 months. If you have any certificates of deposits maturing, be sure to reinvest in shorter term CDs. It makes no sense to lock into a long term CD rate now when rates are moving higher.

By the end of 2015, 1 year CD rates could be in the 2.50 percent to 3.00 percent range. 6 month CD rates will head towards 2.00 percent. Longer term rates will also move higher. 5 year CD rates which are currently around 2.25 percent will increase towards 3.50 percent, possibly as high as 4.00 percent.

The higher interest rate cycle will start in 2015 and will last until 2017 or 2018. I wouldn't lock into a CD term longer than 1 year for the next 3 years. You're better off staying invested in 6 month CDs so you can take advantage of higher rates every 6 months.

Listed below are the best CD rates for CD terms of 3 months, 6 months, and 1 year:

3 Month CD Rates

  • California First National Bank 0.60% APY

  • First Internet Bank of Indiana 0.45% APY

  • AloStar Bank of Commerce 0.40% APY


  • Goldwater Bank 0.40% APY

  • Virtual Bank 0.40% APY

  • Barclays Bank 0.35% APY

  • Discover Bank 0.35% APY

  • EverBank 0.34% APY


6 Month CD Rates

  • Zions Direct 1.00% APY

  • California First National Bank 0.95% APY

  • MyCBB 0.85% APY

  • Chartway Federal Credit Union 0.85% APY

  • Pentagon Federal Credit Union 0.81% APY


  • EH National Bank 0.80% APY

  • Silvergate Bank  0.75% APY

  • First Internet Bank of Indiana 0.70% APY

  • Goldwater Bank 0.70% APY


1 Year CD Rates

  • Colorado FSB 1.34% APY 1.35%

  • Pentagon FSB 1.30% APY 1.31%

  • Chartway FSB 1.30% APY 1.31%

  • Synchrony Bank 1.22% APY 1.23%

  • My Bank Direct 1.21% APY 1.22%

  • My e-BAnC by BAC Florida Bank 1.19% APY 1.20%

  • Home Savings Bank 1.19% APY 1.20%

  • Virtual Bank 1.15% APY 1.16%

  • Sallie Mae Bank 1.14% APY 1.15%


Search our CD rate list for the most update rates: CD Rates List
Author: Brian McKay
May 4th, 2015