Savings Rates and Mortgage Rates at Record Lows - Weekly Rate Summary

This past week the discussion was on turkey and the start of the Holiday shopping season. Over the next couple of weeks we will see if consumer spending is as buoyant as the stock market. The early indications from Black Friday and the first shopping weekend is that consumers are out in force, but are not spending that much. According to data from the National Retail Federation Weekend Survey:

"...195 million shoppers visited stores and websites over Black Friday weekend, up from 172 million last year. However, the average spending over the weekend dropped to $343.31 per person from $372.57 a year ago. Total spending reached an estimated $41.2 billion.

“Shoppers proved this weekend that they were willing to open their wallets for a bargain, heading out to take advantage of great deals on less expensive items like toys, small appliances and winter clothes,” said Tracy Mullin, NRF President and CEO. “While retailers are encouraged by the number of Americans who shopped over Black Friday weekend, they know they have their work cut out for them to keep people coming back through Christmas. Shoppers can continue to expect retailers to focus on low prices and bargains through the end of December.”

Of course, comparing sales to last year is like comparing an ocean liner's maiden voyage to that of the Titanic. Everything is going to look better in comparison. I was out today at Best Buy and the store was busy, but not frenzied. The women at the cash register told me that there had been a steady stream of customers all day. We'll see if consumers are as ebbuliant as the markets and the Wall Streeters who are getting record bonuses this year.

The other big news for the week was the potential default of the Dubai World Fund on its $59 billion in debt. Now, let's put that into perspective. $59 billion is not that much money on a global basis and it will certainly be backed up by the United Arab Emirates. But it shows the fragility of the once high-flying emerging markets. If Dubai can get into trouble, it raises questions about other Gulf countries and other regions of the world with high debt ratios - what region besides Asia doesn't have high debt ratios? As revenue and collateral values plummet anyone can be exposed. The tied has gone out and now we're seeing who's left stranded on the beach.

Against this backdrop we did see some good news on the real esate front - I think. Home prices showed sustained improvement in the third quarter. That marks three straight quarters in which prices didn't fall as fast as they did in the past. Or in real esate parlance: The annual rate of return has improved from a -14.7% decline in the second quarter to a -8.9% decline in the third quarter." You can read the whole article here.

Existing homeprices also rose 10% in October according to the National Association of Realtors. But as Sam Cass notes in his article Existing Home Sales Rise 10% in October - Break out the Bubbly, be very suspicious of that number. Government steroids may be responsible for much of that gain.

It is against that backdrop that we dive into a review of Savings, CD, and Mortgage Rates:

CD and Savings Rates

Savings rates hit a new 52-week low last week, falling by 1 basis point from 1.62% APY to 1.61% APY. One year CD rates took the steepest drop, falling by 7 basis points to 2.01% APY. Both three year and five year CD rates fell slighly, by 3 and 2 basis points respectively. The slow, painful downward trend continues.

Looking at the yield ratio we have developed for deposit accounts , we see that the spread between savings rates and 36-month CDs remains close to its 12 month high. While it has come slightly in the last few weeks, the ratio is still elevated relative to earlier in the year. This reflects the rate stability in longer term CD rates even as savings rates continue their glacial descent. The story is really the weakness in savings rates and the continued 0% Fed rate policy. That's driving the ratio. Banks are still awash in cash and cheap money from the Fed and the Fed's policy of keeping rates low for an extended period of time is going to drive this ratio higher.

It's still hard to recommend putting money into anything longer-term than a 12-month CD, especially with soaring equity markets and signs that the economy may be coming back to life. For those worried about interest rate risk, cd laddering may be a good way to smooth out the return you receive from your CD portfolio.

Mortgage Rates

Savers' pain is a borrower's gain. Mortgage rates again hit record lows over the past week. According to the BestCashCow rate tables, the average 30-year fixed rate mortgage is now below 5% at 4.893%. The fifteen-year fixed rate mortgage average is 4.362%, at an all-time low.

You can compare the best mortgage rates in our new Mortgage section.