CD and Savings Rates Flat, Mortgage Rates Dow - Weekly Rate Update

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

CD and savings rates showed virtually no movement over the past week. Mortgage rates have decended over the past three weeks, touching lows not seen since last April when the Fed began buying up mortgage backed debt.

This week the discussion continued about whether the Fed's 0% rate policy is leading to the creation of asset bubbles. Chinese and Japense central bankers went on record as stating that the Fed's policy has already led to asset bubbles in Asia that could create global imbalances. In particular, they were referring to the carry trade, in which investors borrow money in a country with low interest rates and invest it in a country with strong asset price growth or higher rates of return. "Liu Mingkang, China’s chief banking regulator, said that the combination of a weak dollar and low interest rates had encouraged a “huge carry trade” that was having a “massive impact on global asset prices”….

Bill Gross from Pimco probably got it right when he said:

"The Fed is trying to reflate the U.S. economy. The process of reflation involves lowering short-term rates to such a painful level that investors are forced or enticed to term out their short-term cash into higher-risk bonds or stocks . Once your cash has recapitalized and revitalized corporate America and homeowners, well, then the Fed will start to be concerned about inflation – not until. To date that transition is incomplete, mainly because mortgage refinancing and the purchase of new homes is being thwarted by significant changes in down payment requirements. The Treasury as well, has a significant average life extension of its own debt to foist on investors before the Fed can raise short-term Fed Funds."

The only good news for savers is that inflation for goods and services remains relatively subdued. The CPI rose by .3% in October. The index has decreased by .2% over the past 12 months. Leading the increase in October was energy and automobiles. While energy prices will probably continue to rise, look for auto prices to fall back now that cash-for-clunkers is over and the government is no longer subsidizing car purchases. Overall though, there is nothing on the goods and services inflation front that would push the Fed to raise rates.

The only inflation seems to be in assets and Bernanke doesn't believe this presents a problem at the moment.

CD and Savings Rates

CD and savings rates showed virtually no movement over the past week. The average savings rate according to the BestCashCow rate tables dropped one basis point to a new low of 1.62% APY. That's down from 1.70% APY a month ago. CD rates have mostly stabilized. The average one year CD rate is now 2.08% APY. That's up slightly from the last week and virtually the same average rate that we saw in October. For the fourth week-in-a-row 5 year CD rates held at 3.35% APY.

SavingsandCDRateAnalysis

Looking at the yield ratio we have developed for deposit accounts, we see that the spread between savings rates and 36-month CDs is still close to its 12 month high. While it came down slightly, the trend is still up. 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.

SavingsandCDRateSpread

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

Mortgage rates have declined over the past three weeks, touching lows not seen since last April when the Fed began buying up mortgage backed debt. According to the BestCashCow rate tables, the average 30-year fixed rate mortgage is now below 5% at 4.901%. The fifteen-year fixed rate mortgage average is 4.373%, close to the all-time low.

What one hand giveth, the other taketh. And so it is that savers are subsidizing borrowers. I could provide a scathing commentary on this but will simply say that if you can't beat them, join them. If you are looking to buy or refinance, now is another great opportunity to do so. You can compare the best mortgage rates in our new Mortgage section.

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Savings Rates Drop, CD Rates Stable - Weekly Rate Update

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

The big news this week from the economic rate front is that the Fed reaffirmed its commitement to keep interest rates low for the foreseeable future. The news sent the stock market soaring, with the Dow hitting a 52-week high of 10,291. We now know that the Fed's easy money policy has indeed been successful at re-inflating the stock and commodity markets. Your mutual fund statements should be looking better than they did last March.

The big news this week from the economic rate front is that the Fed reaffirmed its commitement to keep interest rates low for the foreseeable future. The news sent the stock market soaring, with the Dow hitting a 52-week high of 10,291. We now know that the Fed's easy money policy has indeed been successful at re-inflating the stock and commodity markets. Your mutual fund statements should be looking better than they did last March.

The good news for investors is bad news for savers. Savings rates continue to drift lower and while CD rates have stabilized, yields in the 1-3% range is hardly anything to cheer about. As I've written before, the only mitigating factor is that inflation is low, increasing the real relative deposit return.

CD and Savings Rates

The average savings rate according to the BestCashCow rate table dropped to a new low of 1.63% APY. That's down from 1.65% the week before and from 1.72% a month eariler. CD rates have mostly stabilized. The average one year CD rate is now 2.06% APY. That's the same average rate that we saw in October. Five year CD rates are currently at 3.35% APY down minimally from 3.39% APY in October.

SavingsandCDRateAnalysis

Looking at the yield ratio we have developed for deposit accounts, we see that the spread between savings rates and 36-month CDs reached a new high two weeks ago. While it came down slightly, the trend is still up. 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. Until we see an actual increase in longer-maturity CDs, there's no reason to think there's an uptick in inflation or rate pressure. Banks are still awash in cash and cheap money from the Fed.

SavingsandCDRateSpread

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.


Savings and CD Rates Flat While Mortgage Rates Down - Weekly Rate Update

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

Savings and CD Rates showed little change from a week ago even as the average 30 year mortgage rate dipped a bit. With low inflation and an economy stuck between reverse and first, there's little reason to see rates rising anytime soon.

Savings and CD Rates showed little change from a week ago even as the average 30 year mortgage rate dipped a bit. With low inflation and an economy stuck between reverse and first, there's little reason to see rates rising anytime soon.

Economic data this week painted a picture of an economy that's still stuck between reverse and first gear. First the good news. GDP grew by 3.5% in the third quarter, the first time we've experienced growth in the last three quarters. If true, it would mark the end of the recession, or least this leg of it.

But if you look deeper into the numbers you realize that much of the growth came from government stimulus programs, specifically the much maligned cash for clunkers program. With the program over, we would expect growth to slow, and that's exactly what seems to be happening. The Bureau of Economic Analysis reported today that consumer spending dropped by .5% in September. In addition, inflation was practically non-existent. The price index for PCE increased 0.1 percent in September, compared with an increase of 0.3 percent in August. A lack of inflation is not the sign of a sizzling economy. Indeed, many economists have begun to mention the deflation word again.

So, the economy is still on government life-support and inflation is nowhere to be seen. That means we can expect the Fed to keep rates low. Bad news for savings and CD rates altough a lack of inflation is generally good for savers (inflation eats away at the value of money in the bank).

In general, this would also be good for mortgage rates, but these rates aren't determined by the Fed. They're generally set by the price of 10-year Treasury notes, and with mounting US deficits, and the end of the Fed's Treasury buying program, there is some thought that mortgage rates may go higher.

Here's how all of this impacted rates this week:

CD and Savings Rates

Rates on Certificate of Deposits were little changed from a week ago. Average rates and changes are below:

                                                 Rate       Change

1 Year Average CD Rate:     2.08       +1 basis point

3 Year Average CD Rate:     2.80       +2 basis points

5 Year Average CD Rate:     3.35       - 2 basis points

The average savings rate showed no change from the previous week. For all intents and purposes, savings rates have bottomed and are now waiting for the Fed to raise rates to begin climbing. That may not happen for some time.

SavingsandCDRateAnalysis

Looking at the yield curve we have developed for deposit accounts we can see the the ratio between savings rates and 36-month CDs reached a new high last week. This reflects the small increase in the 3-year CD and the lack of change in the savings rate. This steepening yield curve could be a sign of the divergence in short term rates (controlled by the Fed) and longer-term rates, which take their cue more from the bond markets.

SavingsandCDRateSpread

Mortgage Rates

The average 30 year mortgage rate actually dropped a bit in the past week, from 5.014% to 5.054% according to the BestCashCow mortgage rates table. If 10-year bond yields rise though, mortgage rates will rise with it.