Those of you holding your breathe, waiting for savings account rates and CD rates to rise, will have to hold for quite a bit longer. Today, the Fed announced that it was going to hold its benchmark interest rate at a record low (0 - .25%) at least through 2013. The Fed announced this in the midst of a ratings downgrade of U.S. debt, a slowing U.S economy, and persistent sovereign debt issues in Europe.
From the Fed Statement:
"To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013."
The Fed Funds rate is a key indicator in setting rates for savings and CD account. When the Fed lowers the Fed Funds rates, savings and CD rates decline, while the opposite is true when the Fed raises rates. Now that the Fed has stated that it remains committed to a low Fed Funds rate at least through 2013, any hope of a rise in bank deposit rates has effectively disappeared for now.
Top savings account rates are currently between 0.50-1.00% while top five year cd rates are between 2.85%-3.00%. Average rates are much lower. That means the one thing you can do in this tough rate environment for savers is shop around a bit to make sure you get the best return on your money. BestCashCow lists all of the best online rates as well as the best local rates for every zip code in the country for both banks and credit unions.
It also means that savers may want to consider putting their money in longer term CDs. Right now, the yield on a top savings account is 1.00% APY while a top 3-year CD yields 2.00% APY. Neither is great but if rates are not going up for the next 2-3 years, why not take the extra one percentage point?
Once again, bad news for savers is good news for borrowers. The Fed will continue to keep longer term Treasury rates low by reinvesting interest from the securities it holds. That and a languid economy will keep keep Treasury rates low, even with the S&P downgrade. That means mortgage rates will stay near record lows for an extended period of time. Even if you have refinanced in the last two years, there may be an opportunity to lower your rate or your term.
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