Savings and CD Rates Flat While Mortgage Rates Down - Weekly Rate Update

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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.

Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee

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Comments

  • CPD

    November 03, 2009

    Sam: Point accepted. Yes, it seems pathetically low. Here are the stats -

    CPI CODI "real" return
    2001 2.8 5.4 2.6
    2002 1.6 2.3 0.7
    2003 2.3 1.4 -0.9
    2004 2.7 1.2 -1.5
    2005 3.4 2.6 -0.8
    2006 3.2 4.5 1.3
    2007 2.8 5.3 2.5
    2008 3.8 4.0 0.2
    2009 0.3 2.3 2.0 *** to date

  • Sam Cass

    November 02, 2009

    "Sara in Wonderland: Best to confer with Bernanke or Geithner for confirmation of that insight."

    It's true the CPI understates inflation but it's a relative thing. So maybe inflation is now 5% instead of 10%. It's still lower than it was two years ago and thus the real rate of savings return is higher. It's still pathetically low but you get the point.

  • CPD

    November 02, 2009

    "... inflation is running around 1-2% per year. That _boosts_ the real return by an additional 1-2%"

    Sara in Wonderland: Best to confer with Bernanke or Geithner for confirmation of that insight.

  • Jack

    November 02, 2009

    It's not "all intensive purposes" - it's "all intents and purposes".

  • Sara

    November 01, 2009

    At least because of low inflation, the actual return on the money is higher. For example, inflation is running around 1-2% per year. That boosts the real return by an additional 1-2%. So a one year cd is actually paying more like 4%. That's not bad.

  • Nate

    October 31, 2009

    Now is not a good time to open a long-term CD. Rates are at record lows. Locking in now is a bad idea. Stay short and rates will go up.

  • Beverly

    October 31, 2009

    Is not a good time to open a 5 year CD? What is rates stay low for the next couple of years?

  • RateMaven

    October 31, 2009

    Rates are going to be down for the next 6-12 months. It's not great for savers but remember that with low inflation your return is actually higher.

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