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Savers Will Have to Wait Until December for Higher Rates

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Another Federal Open Market Committee (FOMC) meeting has come and gone without a fed funds rate hike. This isn't good news for savers who have been dealing with low savings rates for almost a decade. The FOMC wrapped up their two day meeting last week and announced they would stand pat on the fed funds rate.

There was a glimmer of good news in the FOMC's released Economic Projections. The projection for the fed funds rate at 0.60 percent in 2016 will mean one more rate hike this year. Whether or not that actually happens remains to be seen but if there is a rate hike, it would be 0.25 basis points.

A 0.25 percent fed funds rate hike will probably prod some banks and credit unions into increasing deposit rates. I don't expect the highest savings rate on our rate list to also increase 0.25 percent. We will probably see the top rates increase around 10 basis points. 

Right now, the best savings rate on our rate list is at 1.25 percent, so we could see the top rate move towards 1.35 percent. The highest money market account rate right now is at 1.10 percent, so the highest rate would likely increase to around 1.20 percent.  

Looking past this year, the FOMC's projections have the fed funds rate at 1.1 percent at the end of 2017 and at 1.9 percent at the end of 2018. If these projections are correct, deposit rates will move higher in the next two years but don't expect any miracles.

A fed funds rate just above 1.00 percent would send the highest savings rates towards 2.00 percent. A fed funds rate near 2.00 percent will send the highest savings rates towards 3.00 percent. These projected rates are still low, historically speaking, but better than current rates.


Author: Brian McKay
September 27th, 2016