The Federal Reserve released their FOMC statement today and it presented no new news for savers. The statement reiterated that economic conditions will warrant exceptionally low rates through mid-2013. Essentially, with unemployment still above 8% and economic shocks emanating from Europe, the economy has still not found its footing.
The Fed did find a few rays of optimism. The economy has "been expanding moderately," household spending "continues to advance," and "inflation has moderated since earlier in the year."
The major drags remain on the economy though - unemployment and housing.
What does this mean for the average saver out there? It means more low rates until at least 2013. At the moment, there is nothing on the horizon that suggests the Fed will raise rates anytime before then. Next year, 2012, looks to essentially be a repeat of 2011 with low savings rates and low borrowing rates. For borrowers, if you can get a loan, the environment looks positive.
With Europe teetering at the edge of a precipice and the US housing market still in a slide, it's hard to see much change before 2014. They say economic cycles run in 7-10 year spans. If that's the case, then savers may not see significantly higher rates until 2015. And then there is the case of Japan, where interst rates have remained close to zero for the last twenty years.
What's a saver to do? Look for the best rate on your savings account. If rates are low, and likely to stay that way, at least get the best of the worst. Consider purchasing longer-term CDs. They provide more yield and if rates are not going to rise you might as well take advantage of the extra yield. Back in 2008-2009, many analysts said not to invest in a 5-year CD because the rates were too low. At that time, five-year CDs paid over 5%.