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Fed Meets and Decides to Keep Interest Rates Low for Now

Fed Meets and Decides to Keep Interest Rates Low for Now

The Federal Open Market Committee (FOMC) had their two day meeting last week and released a statement on economic policy. As expected, there were no changes in the Fed's current policy to keep interest rates low to spur economic growth. This means for now, savings rates and other deposit rates will remain at current low levels.

Fed Meets and Decides to Keep Interest Rates Low for NowAnother piece of economic news released this past week was April's employment report. For the month of April, 165,000 jobs were created, slightly better than analyst estimates. There were some other positive numbers in the April report, the unemployment rate fell from 7.6 percent to 7.5 percent and employment numbers for the prior two months were increased.

The number of non-farm jobs created in February was increased from +268,000 to +332,000, and the change for March was increased from +88,000 to +138,000. All of this positive news in the report sent 10 year bond yields soaring 12 basis points to 1.75 percent on Friday. While higher bond yields won't have an upward pressure on deposit rates, it will send mortgage rates higher next week.

Savings rates, money market rates, and CD rates won't move higher until the Fed increases their key interest rate, the fed funds rate. We are a little closer to that actually happening since the unemployment rate fell to 7.5 percent. The Fed says they plan to keep the fed funds rate near zero percent until the end of 2015, when they believe the employment rate will fall below 6.5 percent.

The unemployment rate has fallen 0.4 percent in four months in 2013. If the rate continues to fall at this pace we would see the 6.5 percent level in 12 months. That means that by April 2014, the rate could be at 6.5 percent a full year and a half before the Fed believes the rate will fall to that level. It will be interesting to see if this scenario plays out and if the Fed does start increasing the fed funds rate when the unemployment rate hits that point.

For now, we have to deal with low interest rates but hopefully rates will increase before the end of 2015. Interest rates have been low for almost 6 years, so seeing an end to them in mid 2014 instead of the end of 2015 would be a welcome relief. Right now the national average savings rate in the FDIC survey this week is at 0.06 percent.

The best savings rates in our national rate database are many times the FDIC average. The highest savings rate in our database is from CIT Bank at 1.00 percent. CIT Bank's savings rate is more than 16 times the FDIC national average savings rate. CIT Bank's rate is also more than 16 times the FDIC average jumbo savings rate which is also at 0.06 percent.

National average money market account rates are faring a little better than savings rates. The current FDIC national average money market account rate is at 0.10 percent and jumbo money market rates are averaging 0.16 percent. The best money market rates in our rate database this week are from EverBank at 1.25 percent APY, more than 12 times the FDIC average and more than 7 times the FDIC jumbo average.

EverBank's 1.25 percent APY is a 6 month promotional rate and the ongoing rate is at 0.76 percent, still much higher than the FDIC averages. When you consider that these rates that EverBank is offering for the first year, the APY comes to 1.01 percent, higher than the best savings rate in our database this week.

Author: Brian McKay
May 5th, 2013