CDs and Online Savings Rate Trends - 2011 to 2024

The graph above shows how the average rates for national bank-offered 5-year, 3-year, and 1-year CDs have trended over the last several years. It also shows how average online savings rates have trended over this time. Longer-term CD rates do not currently offer a premium over 1-year rates or online savings rates. The lack of a time premium reflects the expectations that the Fed is now likely to maintain the short-term Fed Funds rate at an elevated level well into 2024, but that it will be lowered rates quickly when it begins to lower them in late 2024 and throughout 2025. Since the average CD rates are well below the best rates on BestCashCow, this graph underscores the importance of shopping carefully - and comparing online rates as well as local rates - before locking into a CD.

If the economy remains strong and the Fed remains on pause, we would expect to see still higher overall average rates in each of these CD products and that the most aggressive offerings will appear online first. Depositors may be well served to remain in online savings accounts or short-term CD (1-year or less) while rates remain at current levels.

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Spread Trends between 5 Year CD and 1 Year CD Rates
- 2011 to 2024

The chart above shows the difference in rate between average 5-year CD rates and 1-year CD rates. So, for example, in October 2011, 5-year CDs paid, on average, 1.01% more than 1-year CDs. That spread narrowed to fewer than 40 basis points during the pandemic, and then have widened in 2022 as the Fed began raising rates and there were strong expectations about further rate increases. In 2024, the Fed has likely completed its rate increases and the spread has completely disappeared.

Depositors should always aim to receive as high a premium as possible to open a longer-term CD to compensate for the longer period of illiquidity. Those depositors valuing liquidity will want to remain in short-term CDs products and online savings accounts until the spread widens substantially. Nonetheless, at some point soon after the Fed has completed its fight against inflation, the spread may widened again. Even if the spread does not widen, it may make sense to allocate money that you do not anticipate needing to long-term CDs in 2024 or 2025 in order to guard against the possibility of precipitous declines in short-term rates in subsequent years.

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Spread between Avg. 1-Yr CD over Online Savings Rates
- 2011 to 2024

The chart above shows the difference between average online savings rates and average 1-year CD. During the pandemic and until early 2022, average 1-year CDs paid virtually no premium over average online savings accounts. Just prior to the Federal Reserve reversing course and cutting rates on July 31, 2019, the spread was at almost 1 full percentage point. In 2024, the expectation is that the Fed is done increasing its rate tightening and will begin to lower rates. There however is a premium being offered by short term CDs over savings to depositors who are willing to lock into 1-year CDs by banks that need to attract capital that they can maintain on their books and in their capital ratios into 2025.

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Mortgage Rate Trends - 2011 to 2024

The chart above shows the rate trend for 30-year fixed rate mortgages, 15-year fixed rate mortgages, and 5-year ARMs. 30-year fixed rate mortgages, the most popular mortgage term, fell to an all-time historic low in December 2012 due to the Fed's Quantitative Easing. The 30-year product, as well as 15-year fixed rate mortgages, retested these all time lows during 2016, and again at the end of the pandemic in 2021 and 2022.

Comparing average rates across these different mortgage products allows borrowers to see if one product is available at a discount over another. Since mortgage rates are based on indices as well as fees and economic conditions, the average rates across different products will not always move in tandem. In 2024, the 30-year rate is still close to recent highs that were hit in 2023, making it important for home purchasers to consider other, shorter products where possible.

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Online Savings and Money Market Average - 2011 to 2024