CD Rates on Upswing While Savings Rates Still Falling

The latest batch of data shows that longer-term CD rate averages are moving up while shorter term CDs as well as savings and money market rates continue to fall. Are we near a bottom?

The chart below shows the rate trends and the uptick in 3-year and 5-year rates over the last two weeks based on the average rates from the BestCashCow rate tables.

The spread, or the difference between the average savings/money market rate and the avarage 3 year CD rate is now at its highest point in over a year. My interpretation is that with rising inflation expectations, banks have to pay consumers more to lock their money up for longer periods of time. Banks can cut short term rates because investors have less places to put the cash that they wish to keep liquid. But if the economy revs up, or inflation rears its head, look for short term rates to begin to rise.

While it's impossible to know for sure, the spread may be an indicator that we have already reached and passed the bottom in longer-term deposit rates and are rapidly approaching that point with savings, money markets and short-term CDs. It may also indicate, as I speculated before the latest stock market rally, that it may be a positive indicator for the general economy and financial markets.

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