bank rates

What Next For CD Rates?

Yes, deposit rates are going to be brutalized for another several years.

But, as we told you Thursday, when the Federal Reserve takes action — as it did in predicting it would hold short-term interest rates near record lows until at least mid-2015 — the sky doesn’t immediately fall.

It usually takes its time.

To see if the Fed has an immediate impact, we decided to look at the best nationally available 5-year CD rates before and after the Fed set new benchmarks on the federal funds rate, a Fed lending rate that indirectly influences how much bank accounts earn.

Overall, the best CD yields didn’t change much surrounding previous announcements. Average yields, however, fell considerably in one case.

The chart below gives a glimpse of what happened surrounding the Fed’s first forecast on Aug. 9, 2011, suggesting it would hold rates near zero “at least through mid-2013.”

7/5/2011 2.80% APY 1.61% APY
7/19/2011 2.60% APY 1.62% APY
8/2/2011 2.60% APY 1.61% APY
8/9/2011 2.60% APY 1.54% APY
8/16/2011 2.50% APY 1.45% APY
8/23/2011 2.50% APY 1.42% APY
9/6/2011 2.50% APY 1.34% APY

The best nationally available 5-year CD rates, which you’ll find on our CD Rates Leaderboard remained fairly stable in the month after the announcement, falling just one-tenth of a percentage point.

Average rates, which come from our national survey of banks and thrifts, fell two-tenths of a percentage point over that same time.

When the Fed announced on Jan. 25, 2012, that it had extended its forecast to keep rates low “at least through late 2014,” there wasn’t much of an immediate impact on 60-month CDs. Again, here’s a look at rates before and after the announcement.

12/28/2011 2.20% APY 1.15% APY
1/11/2012 1.95% APY 1.17% APY
1/18/2012 1.95% APY 1.16% APY
1/25/2012 1.95% APY 1.15% APY
2/1/2012 1.95% APY 1.16% APY
2/8/2012 1.95% APY 1.16% APY
2/22/2012 1.95% APY 1.15% APY

Today, average 5-year CD yields are at a record-low 1.01% APY. The average has fallen a tenth of a percentage point since mid-June. The best nationally available deal on our CD Rates Leaderboard pays 1.86% APY – about the same place it was in mid-June.

Will rates take a huge drop going forward? It’s a good bet they won’t increase.

But rates are already so low, it’s hard to imagine they can fall much further.

Of course, we’ve said that before, too.

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Comments (1)
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One Existing Comment
  1. SeniorSaver said:
    on September 19th at 08:49 am

    I see Discover Bank bumped its 12-month rate up 10 basis points this morning–to 1.00% APY. It also seems to have increased its online advertising. Maybe it thinks, with all the bad news on rates, it’s a good time to do a promotion–to attract those who fear future rate declines. Just a thought.