Best Savings Rates Increase as Fed is Poised to Send Rates Higher in 2015

Slowly but surely, savings account rates and money market rates are moving higher. This week we have 5 banks offering savings rates or money market account rates at or above 1.00 percent. The good news that is more increases are on the way because the Federal Open Market Committee (FOMC) is set to increase the federal funds rate sometime in 2015.

An increase in the fed funds rate, which is slated to happen sometime in the summer or fall of 2015, will be the first increase in 9 years. The last time the rate was increased was on June 29, 2006, when the FOMC increased the fed funds rate from 5.00 percent to 5.25 percent. The last decrease to the current range of zero percent to one quarter percent was on December 16, 2008. You can view an entire history of the fed funds rate on the NY Fed's website: Historical Fed Funds Rate.

The best savings rate on our rate table this week is from My Savings Direct at 1.04 percent with an APY of 1.05 percent. My Savings Direct is a division of Emigrant Bank, which has been around in one form or another since 1850. The best money market rate this week is from ableBanking, a division of Northeast Bank at 1.02 percent with an APY of 1.02 percent.

Fed Funds Rate Forecasts

Where deposit rates end up in the future depends on how much the FOMC increases the fed funds rate. The FOMC participants have forecast the fed funds rate to be anywhere between near zero percent and as high as 2.875 percent in 2015. You can view the Fed's chart to the right or on Fed's website: FOMC Fed Funds Rate Projections.

The majority of forecasts are between 1.00 percent and 2.00 percent. The fed funds rate at 1.00 percent would send the best deposit rates towards 2.00 percent and 3.00 percent. A fed funds rate of 2.00 percent would send the highest deposit rates to between 3.00 percent and 4.00 percent.

Forecasts in 2016, 2017, and beyond are for an even higher fed funds rate. The majority of Fed participants have the fed fund rate between 2.00 percent and 3.00 percent in 2016 and between 3.50 percent and 4.00 percent in 2015.

Many things can change between now and the next several years, but one thing is certain - interest rates are going higher. After 5 or so years of very low rates, an increase in rates is welcome news.
Author: Brian McKay
November 7th, 2014