Savings, CD, and Mortgage Rate Trends

CDs and Online Savings Rate Trends

The graph above shows how the average rates for national bank-offered 5-year, 3-year, and 1-year CDs have trended over the last several years. It also shows how average online savings rates have trended over this time. Even during the most difficult periods, average online savings rates have stayed close to the average bank-offered 3-year CD rate. In 2019, online savings rates moved above average 5-year CDs rate. This graph therefore absolutely underscores the importance of checking online rates before committing to a long-term CD at your local bank!

This graph also demonstrates a clear trend in average savings rates through the life of the recovery across the last decade. Average rates for each of the products were falling until July 2013. Rates have stabilized around that point. While average rates have flatlined, we saw strong online offerings in the 3-year, 4-year and 5-year CD products in 2014 and 2015. If the economy continues to strengthen and the Federal Reserve renews a normalization of interest rates in 2021, we expect that the overall average rates in these products will increase and that the most aggressive offerings will appear online first.

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Spread Trends between 5 Year CD and 1 Year CD Rates

The chart above shows the difference in rate between average 5-year CD rates and 1-year CD rates. So, for example, in October 2011, 5-year CDs paid, on average, 1.01% points more than 1-year CDs. That spread narrowed and fell below 60 basis points in 2019. When the Federal Reserve raises rates again, the spread may widen. It could also widen as the interest rate curve gains slope even if the Fed does not raise the short-term rate. However, it could narrow if economists feel that the U.S. is headed for a recession and that the Federal Reserve could begin to cut the rate in future years. Depositors should aim to receive as high a premium as possible to open a longer-term CD to compensate for the longer period of illiquidity. Those depositors valuing liquidity will want to remain in short-term CDs products online savings accounts until the spread widens substantially (unless they expect substantially lower interest rates in the intermediate term).

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Spread Trends between Online Savings and 1 Year CD Rates

The chart above shows the difference between average online savings rates and average 1-year CD. In October 2011, average 1-year CDs paid 23.4 basis points more than average online savings accounts. Just prior to the Federal Reserve reversing course in 2019, the spread increased to almost 1 full percentage point, making the premium in one-year CDs more attractive than it had been in over a decade. While the spread has pulled in a little bit, many depositors looking to 2020 will see 1-year CDs as still offering a very attractive premium for locking up their money for a short term.

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Mortgage Rate Trends

The chart above shows the rate trend for 30-year fixed rate mortgages, 15-year fixed rate mortgages, and 5-year ARMs. 30-year fixed rate mortgages, the most popular mortgage term, fell to an all-time historic low in December 2012 due to the Fed's Quantitative Easing. The 30-year product, as well as 15-year fixed rate mortgages, retested these all time lows during 2016. The average rates on all products moved higher through 2018, but pulled back in 2019 as the Fed lowered the Fed funds rate three times.

Comparing average rates across these different mortgage products allows borrowers to see if one product is available at a discount over another. Since mortgage rates are based on indices as well as fees and economic conditions, the average rates across different will not always move in tandem.

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Online Savings and Money Market Average