In Spite of Uncertainty, Savings and CD Rates Are Rising into December 2018 FOMC Meeting
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In Spite of Uncertainty, Savings and CD Rates Are Rising into December 2018 FOMC Meeting

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The last couple of weeks have been fraught with uncertainty in global markets. In the US, we ended November with Fed Chairman Jay Powell moving to appease a President in a speech before the NY Economic Club by suggesting that a “neutral” Fed Funds rate lies just above current rates and removing a 3% + target.

Subsequently, we have seen an escalation in trade tensions with China with the arrest in Canada of Meng Wanzhou, Huawei’s CFO, and a realization that Mueller now has the evidence to expose Trump’s suspect enterprise when his final report is released. Financial markets have gone into a tailspin.

Whereas the Federal Reserve is still predicted to raise the Fed Funds rate to a 2.25-to-2.50% target at its next meeting, the language in its statement will almost certainly mirror Powell’s statement in front of the NY Economic Club which could cause the rise that we have seen in savings and CD rates to stop or to slow.

In advance of each Fed move this year, we have seen a rise in savings and CD rates for two weeks in anticipation of the move (with some banks trailing to raise their rates subsequently). With all of this uncertain and a likely change articulated in Federal Reserve policy, one might expect banks less eager to move to raise rates going into the FOMC meeting on December 18 and 19, 2018. Contrary to this expectation, the most aggressive online banks have already raised savings rates this past week (Popular raised to 2.36% and My Savings Direct to 2.40%). We expect other online banks will be forced to match this move in order to stay competitive going into the Fed move.

See the best online savings today rates here.

We are also seeing local banks and local credit unions continue to aggressively raise their savings and money market rates.

See the best savings and money market rates at banks near you here.

See what credit unions near you are paying on cash here.

We are also seeing short-term CD rates advance around the anticipated December rate increase, again in spite of Powell's statement that we are now just below target. Over the last week, we have seen several increases in online one-year CD rates with several banks now offering over 2.85%.

Local banks near you may offer even higher 1-year rates, as may local credit unions.

Interest rate anxiety around whether the Fed is going to continue to raise or pause may increase following the Fed’s December statement. The average spread between online savings and online 1-year CDs now stands at 77 basis points which is the widest it has been in a decade (see the third graph on BestCashCow's rate analysis page). It may be peaking around here.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to bank transparency and the climate crisis. Since co-founding BestCashCow in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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