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. For the first time in several years, CD rates of all duration now offer a significant premium over online savings rates. That premium reflects the likelihood that the Fed will maintain rates at an elevated level through 2023. Since local CD rates have been slower to rise in 2022, this graph underscores the importance of checking online rates before committing to a long-term CD at your local bank!
If the economy remains strong enough for the Fed to bring the Fed funds rate close to 4% in early 2023, we would expect to see higher overall average rates in each of these CD products and that the most aggressive offerings will appear online first. Depositors may be well served to remain in online savings accounts while rates are rising.
View online savings account rates | View online CD rates
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% more than 1-year CDs. That spread narrowed to less than 40 basis points during the pandemic, and then have widened in 2022 as the Fed began raising rates and the Fed removed liquidity and as the market added expectations about further rate increases.
Depositors should always 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 and online savings accounts until the spread widens substantially. Nonetheless, at some point soon after the spread has widened significantly, long-term CDs could make sense for depositors, especially if we continue to see expectations that the Fed will be cutting rates again as early as late 2023.
View online savings account rates | View online CD rates
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. During the pandemic and until early 2022, average 1-year CDs paid virtually no premium over average online savings accounts. Just prior to the Federal Reserve reversing course and cutting rates on July 31, 2019, the spread was at almost 1 full percentage point. As we get into late 2022 and early 2023 when the Fed will have moved the Fed funds rate well above 3% and economists may be questioning the need for further increases, we expect to see the premium return to its 2019 heights.
View online savings account rates | View online CD rates
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, and again at the end of the pandemic in 2021 and 2022.
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 products will not always move in tandem.
Online Savings and Money Market Average
