The big news this week from the economic rate front is that the Fed reaffirmed its commitement to keep interest rates low for the foreseeable future. The news sent the stock market soaring, with the Dow hitting a 52-week high of 10,291. We now know that the Fed's easy money policy has indeed been successful at re-inflating the stock and commodity markets. Your mutual fund statements should be looking better than they did last March.

The good news for investors is bad news for savers. Savings rates continue to drift lower and while CD rates have stabilized, yields in the 1-3% range is hardly anything to cheer about. As I've written before, the only mitigating factor is that inflation is low, increasing the real relative deposit return.

CD and Savings Rates

The average savings rate according to the BestCashCow rate table dropped to a new low of 1.63% APY. That's down from 1.65% the week before and from 1.72% a month eariler. CD rates have mostly stabilized. The average one year CD rate is now 2.06% APY. That's the same average rate that we saw in October. Five year CD rates are currently at 3.35% APY down minimally from 3.39% APY in October.

Looking at the yield ratio we have developed for deposit accounts, we see that the spread between savings rates and 36-month CDs reached a new high two weeks ago. While it came down slightly, the trend is still up. 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. Until we see an actual increase in longer-maturity CDs, there's no reason to think there's an uptick in inflation or rate pressure. Banks are still awash in cash and cheap money from the Fed.

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.

Savings and CD Rates showed little change from a week ago even as the average 30 year mortgage rate dipped a bit. With low inflation and an economy stuck between reverse and first, there's little reason to see rates rising anytime soon.

Economic data this week painted a picture of an economy that's still stuck between reverse and first gear. First the good news. GDP grew by 3.5% in the third quarter, the first time we've experienced growth in the last three quarters. If true, it would mark the end of the recession, or least this leg of it.

But if you look deeper into the numbers you realize that much of the growth came from government stimulus programs, specifically the much maligned cash for clunkers program. With the program over, we would expect growth to slow, and that's exactly what seems to be happening. The Bureau of Economic Analysis reported today that consumer spending dropped by 0.5% in September. In addition, inflation was practically non-existent. The price index for PCE increased 0.1 percent in September, compared with an increase of 0.3 percent in August. A lack of inflation is not the sign of a sizzling economy. Indeed, many economists have begun to mention the deflation word again.

So, the economy is still on government life-support and inflation is nowhere to be seen. That means we can expect the Fed to keep rates low. Bad news for savings and CD rates altough a lack of inflation is generally good for savers (inflation eats away at the value of money in the bank).

In general, this would also be good for mortgage rates, but these rates aren't determined by the Fed. They're generally set by the price of 10-year Treasury notes, and with mounting US deficits, and the end of the Fed's Treasury buying program, there is some thought that mortgage rates may go higher.

Here's how all of this impacted rates this week:

CD and Savings Rates

Rates on Certificate of Deposits were little changed from a week ago. Average rates and changes are below:

Rate Change

1 Year Average CD Rate: 2.08 +1 basis point

3 Year Average CD Rate: 2.80 +2 basis points

5 Year Average CD Rate: 3.35 - 2 basis points

The average savings rate showed no change from the previous week. For all intents and purposes, savings rates have bottomed and are now waiting for the Fed to raise rates to begin climbing. That may not happen for some time.

Looking at the yield curve we have developed for deposit accounts we can see the the ratio between savings rates and 36-month CDs reached a new high last week. This reflects the small increase in the 3-year CD and the lack of change in the savings rate. This steepening yield curve could be a sign of the divergence in short term rates (controlled by the Fed) and longer-term rates, which take their cue more from the bond markets.

Mortgage Rates

The average 30 year mortgage rate actually dropped a bit in the past week, from 5.014% to 5.054% according to the BestCashCow mortgage rates table. If 10-year bond yields rise though, mortgage rates will rise with it.

We've talked about it for some time, but the Washington Post has finally gotten with the program. The economic crisis and subsequent bailouts have severely penalized savers and those living on fixed incomes. Bankdeals has pointed out an article by Allen Sloan that puts its finger on the dilemma created by the low rate environment engineered by the Fed.

"This is a quiz. What do the record-high Wall Street bonuses have in common with the record-low yields for savers? Answer: They show yet another way that prudent people, especially those living on fixed incomes, are being cheated by the government's bailout of the imprudent."

The article goes on to discuss how this time, the damage done to savers is greater than in the past. Usually, the Fed lowers short term rates (the Fed Funds Rate) which impacts yields on savings and CD accounts. But this time, it has purchased hundreds of billions of Treasuries to lower yields. Treasuries yields have dropped to record lows, even as the government issues more to cover it's record debt.

And the Build America Bond program allows municipalities to borrow, with 35% of the borrowing subsidized by the public. These bonds have crowded out regular municipal bonds and droppped yields to near record lows.

Those living on fixed incomes have been in a tough pickle. My advice is to ensure that all savings and cd rates are getting the best possible interest. Be sure to open a high yield savings account or a cd via a site like BestCashCow.

And hold on. Yields will not stay this low forever and if anything, will rise dramatically as the dollar continues its decline/collapse and as the economy shows some small signs of life.