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, the average online saving rate has stayed close to the average 3-year rate and now trends closer to the 5-year 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 this 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 did see some strong online offerings in the 3-year, 4-year and 5-year CD products in 2014 and 2015. If the economy continues to strengthen in 2019, 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 has narrowed, hitting nadirs in July 2013 and November 2017. If the Federal Reserve continues to raise the Fed Funds target rate in 2019, the spread may widen. It could also 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. Until the spread widens substantially or unless they expect substantially lower interest rates in the intermediate term, depositors should stay in 1-year CD products or online savings accounts.

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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, 1-year CDs paid 23.4 basis points more than online savings accounts. In December 2018, that premium had increased to 77.7 basis points. As we enter 2019, 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.

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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 as the due to rising interest rates and a strengthening U.S. economy.

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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