Future Direction of Depost Rates as Economy Slows and the FOMC Meets
Surprisingly weak economic data released this morning might keep deposit rates low longer than expected. The U.S. economy barely expanded in the first quarter because of the cold winter, exports tumbling and businesses accumulating stocks at the slowest pace in nearly a year.
The Commerce Department said gross domestic product (GDP) expanded at a 0.1 percent annual rate, a dramatic pullback from the fourth quarter's 2.6 percent growth rate. First quarter growth was the slowest it has been since the fourth quarter of 2012.
The Federal Open Market Committee is wrapping up their two day meeting today and was expected to continue slowing their asset purchases. The Fed is currently making $55 billion a month in purchases and was expected to reduce it to $45 billion a month starting in May. The weak GDP report probably won't change the reduction this month but the Fed might hold off on anymore reductions until later this year.
Tapering their purchases of mortgage-backed securities and long term U.S. Treasuries is likely to force long term bond rates and mortgage rates higher but a weak economy will slow the increase.
As for deposit rates, which are dependent on the Fed increasing the fed funds rate, those rates might stay low longer than the expected. The Fed is expected to increase the fed funds rate by mid-2015 but the increase might come later in 2015 if economic growth slows. The current fed funds rate is near zero percent, this has forced deposit rates down to record lows since 2009.
The best savings account rates on our rate list this week are at 0.95 percent and the best money market account rates are at 0.90 percent. These rates have held steady for the past 6 months. Some banks will raise their deposit rates before the fed funds rate is increased but any increases will be small.
Deposit rates are moving higher in the future so staying invested in variable interest rate accounts is a smart move. This week's highest savings account rates and money market account rates are listed below:
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