Savings, CD, and Mortgage Rate Trends

CDs and Online Savings Rate Trends

The graph above shows how the average rates for 5, 3, and 1 year CDs as well as Online Savings Accounts have trended over time. Average rates for each of the products had fallen until July 2013. Since then, the average rates on 5 and 3 year CDs have risen slightly and looked poised to rise more if the economy continues to strengthen. Online savings rates have remained flat and 1 year CD rates have continued to fall.

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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, 1.010% points more than 1 year CDs. That spread has narrowed over time as average one year CD rates have dropped faster than 6 year, resulting in a spread difference of only 0.746 percentage points in January 2013. This narrowing of the spread continued until July 2013 at which point it broke trend and began to rise. The rise is due to the increase in the average 5 year CD rate.

Another way of saying this is that on average 5 year CDs paid about one percentage more than 1 year CDs in October 2011 but in September 2013 pay about 0.712 percentage points more. The premium for opening a longer-term CD has eroded over the course of that time period. Savers should want to receive as high a premium as possible to open a longer-term CD to compensate for the longer period of illiquidity.

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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, Online Savings Accounts on average paid 0.234 percentage points more than average 1 year CD rates. In January 2013, that difference had increased to 0.342 percentage points. In September 2013 it had fallen to 0.334 percentage points. Put another way, on average, online savings accounts paid 0.334 percentage points more than 1 year CDs in September. Savings account rates have fallen far slower than 1 year CD rates over the past year and now pay almost the same rate as 3 year CDs. Savers should consider whether it is worthwhile to lock money up in a 1 or 3 year CD versus an online savings account based on this data.

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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. Thirty year rates, the most popular mortgage, had fallen to an all-time historic low in December 2012 due to the Fed's Quantitative Easing. 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. Fifteen year rates have also risen from their lows. 5-year ARMS have remained low, their rates more dependent on short term interest rates, which have not risen significantly.

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.

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