Look for Higher Savings Rates Right After the Fed Fund Rate Increase

We are just over a week away from the Federal Reserve meeting and higher interest rates. It's hard to believe it's been almost a decade since the Fed last increased the fed funds rate. While the increase is expected to be small, 25 basis points, at least the rate is finally moving higher.

When the rate is increased we expect some banks to increase their savings rates, money market rates, and short term CD rates right away. This increases will also be around 25 basis points. The top savings rates and money market rates currently around 1.10 percent will head towards 1.35 percent and possibly as high 1.50 percent.

The big unknown is whether there will be more rate hikes in subsequent Fed meetings in 2016. The answer remains to be seen, as any future rate hikes will be data dependent. Strong job growth, a lower unemployment rate, and higher wage inflation will be the keys to higher rates.

There are four scheduled FOMC meetings for the first 6 months of 2016. If the rate is increased 25 basis points at each meeting, the fed funds rate could be at 1.25 percent by the end of June. A 1.25 percent rate will drive variable deposit rates up near 2.50 percent. 1 year CD rates could move as high as 1.75 percent.

Regardless of where deposit rates end up in 2016, rates are moving higher. For a current list of variable deposit rates use our rate table at RatesORama.com/Savings-Accounts.

Author: Brian McKay
December 8th, 2015