Savings and CD Rates Drop While Mortgage Rates Up - Weekly Rate Update

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Savings and CD rates dropped last week while mortgage rates rose, reflecting the steepening of the Treasury yield curve. The Fed continues to hold short and medium term rates low and longer-term rates are responding to inflation fears.

It was a relatively quiet week as markets and consumers ready themselves for the Holiday season. The biggest news had to do with the increase in the yield between the 2 year Treasury Note and the 30 year bond. The yield curve earlier in the week was the steepest it's been since 1992. What's behind this? The Fed is keeping short term rates low. Long-term rates are rising though as investors look ahead to increased Treasury security offerings and investors become more and more concerned about nflation. Still, for all the worry about inflation, there is remarkably little on the horizon. As this Wall Street Journal article writes:

"Based on prices of U.S. Treasury Inflation-Protected Securities, where principal and interest payments are adjusted for changes in the CPI, inflation is expected to be less than 1% in 2010, says Michael Pond, Treasurys and inflation market strategist at Barclays Capital.

Looking a little bit further out, TIPS prices suggest inflation is expected to be 1.5% per year over the next five years and roughly 2.1% over the next 10 years, according to Barclays. "

Some investors feel that TIPS are just cheep and haven't yet priced in future inflation. Maybe so. But there is still tremendous slack in the economy and it is far more likely we'll see an asset bubble before we see a jump in CPI inflation.

The impact in the steep yield curve can be seen in the dichotomy between deposit and lending products.

CD and Savings Rates

Short term and medium term rates remain low and dropping.

All savings and CD rates dropped last week. Savings rates dropped last week by 4 basis points from 1.61% APY to a new low of 1.57% APY. One year CD rates also dropped by 4 basis points to 1.95% APY while 3 year CD rates dropped by 8 basis points to 2.72% APY. Five year rates dropped by 9 basis points from 3.35% APY to 3.26% APY. It's uncharacteristic for 5-year rates to drop by so much and after rallying a bit from summer lows of 3.22% APY are closing in again on that level.

Savings,CDRateAnalysis

Looking at the yield ratio we have developed for deposit accounts, the spread the spread between savings rates and 36-month CDs came down slightly due to the drop in 3-year CD rates. This drop in longer-term CD rates reverses the slightly upward movement that we saw since the summer. It's possible we'll see 5-year CD rates below 3% APY in the next couple of months if the current trend continues.

SavingsandCDSpreadAnalysis

My guess is that the downward blip in 3 and 5 year CD rates was a temporary phenomena. Treasury notes and bonds saw their yields rise last week and as the Fed begins to remove stimulus it's easier to see rates going up in the future than going down. It's still hard to recommend putting money into anything longer-term than a 12-month CD, especially with rising equity markets and signs that the economy may be coming back to life. For those worried about interest rate risk, cd laddering may be a good way to smooth out the return you receive from your CD portfolio.

Mortgage Rates

Longer term mortage rates for the first time in several weeks.

According to the BestCashCow rate tables, the average 30-year fixed rate mortgage rose from 4.957% the previous week to 4.971%. The fifteen-year fixed-rate mortgage average went from 4.4% to 4.43%. While mortgage rates rose on most products, they are still close to historic lows. This is a good time to refinance and these rates won't last once the Fed ends its mortgage and Treasury Bond buybacks. Many analysts expect rates will increase into the 6% range once this happens.

MortgageRateAnalysis

You can compare the best mortgage rates in our new mortgage section.


Savings, CD, and Mortgage Rates Hit Record Lows - Weekly Rate Update

Rate information contained on this page may have changed. Please find latest savings rates.

Savings rates stayed at the 52-week low last week, holding steady at 1.61% APY. One year CD rates took the steepest dropped by 1 basis point to a new BestCashCow low of 2.00% APY. According to the BestCashCow mortgage rate tables, the average 30-year fixed rate mortgage is below 5% at 4.957%. The fifteen-year fixed-rate mortgage average is 4.4%.

The Labor Department provided an early Holiday present today, providing a job's report that was far better than anyone expected. Yes, the economy still shed jobs, but only a seasonlly adjusted 11,000 in November versus projections of 100,000. The unemployment dipped for the first time in months, going from 10.2% to 10%. The employment news caused the dollar to strengthen and gold to plunge on expectations that the Fed may begin raising rates sooner than expected. Ironically, this has happened at the same time that savings rates, cd rates, mortgage rates, and muni bond rates are hitting multi-year lows. Coincidence? Probably not. The economy seems to have bottomed and rates are a lagging indicator. For savers, the night is darkest just before the dawn, and we may be seeing the faint glimmers of sun. For borrowers, the golden days may be coming to an end. If you were thinking of refinancing or buying a home, now is the time. Mortgage rates are at record lows and if the economy continues on its current trajectory, will begin rising soon.

CD and Savings Rates

Savings rates stayed at the 52-week low last week, holding steady at 1.61% APY. One year CD rates took the steepest dropped by 1 basis point to a new BestCashCow low of 2.00% APY. Three year rates actually rose by 8 basis points from 2.72% APY to 2.8% APY due to the addition of several new banks to the rate tables with aggressive pricing. Five year rates also increased by 2 basis points to 3.35% APY.

Savings,CDRateAnalysis

Looking at the yield ratio we have developed for deposit accounts, the spread the spread between savings rates and 36-month CDs reached a new all-time high. As we discussed, 3 year (36 month) CD rates rose due to aggressive pricing from several banks new to the rate tables. Nevertheless, the fact remains that longer-term CD continue to inch up even as savings rates remain steady or decline. If the economy continues to firm up, look for 3 and 5 year CD rates to continue rising and the ratio to go even higher.

SavingsandCDSpreadAnalysis

It's still hard to recommend putting money into anything longer-term than a 12-month CD, especially with soaring equity markets and signs that the economy may be coming back to life. For those worried about interest rate risk, cd laddering may be a good way to smooth out the return you receive from your CD portfolio.

Mortgage Rates

Once again, savers' pain is a borrower's gain. Mortgage rates again hit record lows over the past week. According to the BestCashCow rate tables, the average 30-year fixed rate mortgage is below 5% at 4.957%. The fifteen-year fixed-rate mortgage average is 4.4%.

MortgageRateAnalysis

You can compare the best mortgage rates in new mortgage section.


Savings Rates and Mortgage Rates at Record Lows - Weekly Rate Summary

Rate information contained on this page may have changed. Please find latest savings rates.

Savings rates hit a new 52-week low last week, falling by 1 basis point from 1.62% APY to 1.61% APY. One year CD rates took the steepest drop, falling by 7 basis points to 2.01% APY. Both three year and five year CD rates fell slighly, by 3 and 2 basis points respectively. The slow, painful downward trend continues.

This past week the discussion was on turkey and the start of the Holiday shopping season. Over the next couple of weeks we will see if consumer spending is as buoyant as the stock market. The early indications from Black Friday and the first shopping weekend is that consumers are out in force, but are not spending that much. According to data from the National Retail Federation Weekend Survey:

"...195 million shoppers visited stores and websites over Black Friday weekend, up from 172 million last year. However, the average spending over the weekend dropped to $343.31 per person from $372.57 a year ago. Total spending reached an estimated $41.2 billion.

“Shoppers proved this weekend that they were willing to open their wallets for a bargain, heading out to take advantage of great deals on less expensive items like toys, small appliances and winter clothes,” said Tracy Mullin, NRF President and CEO. “While retailers are encouraged by the number of Americans who shopped over Black Friday weekend, they know they have their work cut out for them to keep people coming back through Christmas. Shoppers can continue to expect retailers to focus on low prices and bargains through the end of December.”

Of course, comparing sales to last year is like comparing an ocean liner's maiden voyage to that of the Titanic. Everything is going to look better in comparison. I was out today at Best Buy and the store was busy, but not frenzied. The women at the cash register told me that there had been a steady stream of customers all day. We'll see if consumers are as ebbuliant as the markets and the Wall Streeters who are getting record bonuses this year.

The other big news for the week was the potential default of the Dubai World Fund on its $59 billion in debt. Now, let's put that into perspective. $59 billion is not that much money on a global basis and it will certainly be backed up by the United Arab Emirates. But it shows the fragility of the once high-flying emerging markets. If Dubai can get into trouble, it raises questions about other Gulf countries and other regions of the world with high debt ratios - what region besides Asia doesn't have high debt ratios? As revenue and collateral values plummet anyone can be exposed. The tied has gone out and now we're seeing who's left stranded on the beach.

Against this backdrop we did see some good news on the real esate front - I think. Home prices showed sustained improvement in the third quarter. That marks three straight quarters in which prices didn't fall as fast as they did in the past. Or in real esate parlance: The annual rate of return has improved from a -14.7% decline in the second quarter to a -8.9% decline in the third quarter." You can read the whole article here.

Existing homeprices also rose 10% in October according to the National Association of Realtors. But as Sam Cass notes in his article Existing Home Sales Rise 10% in October - Break out the Bubbly, be very suspicious of that number. Government steroids may be responsible for much of that gain.

It is against that backdrop that we dive into a review of Savings, CD, and Mortgage Rates:

CD and Savings Rates

Savings rates hit a new 52-week low last week, falling by 1 basis point from 1.62% APY to 1.61% APY. One year CD rates took the steepest drop, falling by 7 basis points to 2.01% APY. Both three year and five year CD rates fell slighly, by 3 and 2 basis points respectively. The slow, painful downward trend continues.

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Looking at the yield ratio we have developed for deposit accounts , we see that the spread between savings rates and 36-month CDs remains close to its 12 month high. While it has come slightly in the last few weeks, the ratio is still elevated relative to earlier in the year. This reflects the rate stability in longer term CD rates even as savings rates continue their glacial descent. The story is really the weakness in savings rates and the continued 0% Fed rate policy. That's driving the ratio. Banks are still awash in cash and cheap money from the Fed and the Fed's policy of keeping rates low for an extended period of time is going to drive this ratio higher.

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It's still hard to recommend putting money into anything longer-term than a 12-month CD, especially with soaring equity markets and signs that the economy may be coming back to life. For those worried about interest rate risk, cd laddering may be a good way to smooth out the return you receive from your CD portfolio.

Mortgage Rates

Savers' pain is a borrower's gain. Mortgage rates again hit record lows over the past week. According to the BestCashCow rate tables, the average 30-year fixed rate mortgage is now below 5% at 4.893%. The fifteen-year fixed rate mortgage average is 4.362%, at an all-time low.

You can compare the best mortgage rates in our new Mortgage section.