bank rates

Low Interest Rates Extended Into 2015

CD rates will remain low.It’s tempting to say the Federal Reserve is like a broken record. Only today, Ben Bernanke and company smashed the record — and the player.

By promising to hold short-term interest rates at record lows “at least through mid-2015” — six months beyond the late-2014 pledge it had previously made — the Fed’s rate-setting committee today all but guaranteed savers’ pain will be prolonged.

Unfortunately, it actually could get worse, because the Federal Open Markets Committee has for the first time acknowledged that an improved economy won’t necessarily spur it to raise rates.

Here’s the relevant sentence from the Fed’s statement following its two-day meeting:

“To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. (Emphasis added.)

So, even if there’s a significant economic recovery, don’t expect the Fed to quickly boost the federal funds rate, the interest rate the Federal Reserve charges commercial banks to borrow money.

This is how the Fed influences how much savers earn on their deposits. If banks get essentially free money from the government, there’s no need to pay consumers for their deposits.

Since December 2008, the Federal Open Markets Committee has held that rate at 0% to 0.25%.

And we all know how far the yields you earn on savings acounts and certificates of deposit have fallen since then.

If the Fed’s prediction holds true, savers probably won’t see much in the way of deposit rate increases for at least another 3 years — or half a year beyond what we had been told prior to today.

But that doesn’t neccessarily mean CD rates will fall again tomorrow.

As we’ve seen each of the last two times the committee has issued revised rate-setting forecasts, there has been little immediate impact.

We’ll take a longer look tomorrow at the CD rate history following the Fed’s announcements.

In the meantime, here’s our advice: If you’re in the market for a certificate of deposit, walk, don’t run to grab the best rates now.

Update: For the first time since the Fed chairman has been giving post-meeting news conferences, Bernanke discussed the toll to savers head-on without having to be asked. So at least he’s noticing.

Bernanke argues for the greater good.

Savers are getting hit, but in the end we’ll all be better for it:

“Low interest rates also support the value of many other assets that Americans own, such as homes and businesses, large and small.

“Indeed, in general, healthy investment returns cannot be sustained in a weak economy. And, of course, it’s difficult to save for retirement or other goals without the income from a job.

“Thus, while low interest rates do impose some costs, Americans will ultimately benefit most from the healthy and growing economy that low interest rates help promote.”

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Comments (4)
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4 Existing Comments
  1. Mike Cetera said:
    on September 13th at 12:13 pm

    The Fed is out with some more explanations on its projections. In June, just six members of the FOMC said the first increase in the federal funds rate would occur in 2015. Today, that number is 12.

  2. Sr. Saver said:
    on September 13th at 01:46 pm

    Where is the hope for the senior saver?

  3. Senior Saver said:
    on September 13th at 02:16 pm

    Did anyone notice that Bernanke seemed to have have a longer nose at the end of his press conference than at the beginning? I thought I saw it really shoot out when he said he was doing this all for Main Street, not Wall Street.

  4. A.Bundy said:
    on September 14th at 03:06 pm

    “Sr. Saver said:Where is the hope for the senior saver?”

    There isnt any. to tell you the truth, there is no real reason to keep money in a bank nowadays. the only thing going for me is the IRA contributions that slightly lowers my tax bracket. IRAs seem to be getting a whopping 0.10% interest rate these days.

    but dont worry about being a senior. If romney wins, there will be no seniors left once he gets rid of social security and makes them pay for healthcare as they will be dropping like flies.