CDs and Online Savings Rate Trends
The graph above shows how the average rates for 5-year, 3-year, and 1-year CDs as well as online savings accounts have trended over the last several years. Average rates for each of the products fell through 2011 until July 2013. Rates have stabilized around that point. While average rates have flatlined, we did see some strong online offerings in the 3-year, 4-year and 5-year CD products in 2014 and 2015. If the economy strengthens in 2017, we would expect to strong offerings begin to appear online again first, and to see the slope of the average rates in these products begin to increase first.
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 has narrowed, hitting a nadir in July 2013. While the spread bounced a little, it has again narrowed over the course of 2016 as 5-year CD rates have fallen after the Fed failed to raise rates as quickly as was expected at the beginning of the year. As the Fed begins to raise rates in 2017, we expect the spread may widen. Depositors should want to receive as high a premium as possible to open a longer-term CD to compensate for the longer period of illiquidity. Until the spread widens substantially, deposits should stay in 1-year CD products or online savings accounts.
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, 1-year CDs paid 23.4 basis points more than online savings accounts. In March 2014, that premium had increased to 39.8 basis points, but has since receded. As we enter 2017, there is little likelihood of rates falling, and depositors should carefully consider based on their own personal circumstances and this data whether it is worthwhile to lock money up in a 1-year CD versus an online savings account.
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. They have since rebounded sharply due to signs the Fed may begin to end its efforts to keep long-term rates low as well as a strengthening U.S. economy.
Comparing rates allows borrowers to see if one product is available at a rate discount over another. Because mortgage rates are based on indices as well as fees and economic conditions, it’s possible that mortgage products will not always move in tandem.