Savings Rates Down and CD Rates Mixed - Weekly Rate Update Sept. 11, 2009

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

Treasuries showed strength this week, with Treasury bond yields staying low despite continued supply via auctions. The Fed has signaled on many occasions that it expects rates to remain low for some time. This week it was the Fed Vice Chairman Donald Kohn who said that a “large and rapid rise” in short-term rates is unlikely because of slow or no worlwide economic growth and the lack of inflation. Indeed mortgage bond yields declined to their lowest levels in 3-months and mortgage rates are expected to follow these yields down.

Still with government borrowing expected to accleerate to fund the $1.85 trillion deficit, some analysts expect rates to rise as the supply of Treasuries overwhelms demand, forcing the government to raise the rate it offers to attract more buyers. That combined with some stirrings in the economy is the only hope at the moment that rates will rise in the medium-term.

So, far the data doesn't show any significant change in the current low-rate environment. As the chart below shows, long term 5-year CD rates seem to have largely stabilized with the average according to the BestCashCow rate table stabilizing in the 3.3% APY range. Rates on other products and terms though continue to drift lower. At this point, unless there is a significant uptick in inflation or economic growth, it's hard to see any change to this dynamic. While rates have pretty much stabilized, they have stabilized at a pretty low level. And at this point, if rates are going to move, it looks like they will still move gradually down.

There's no significant change to report in the spread between savings rates and 36-month CDs. The spread ticked up a bit but nothing that isn't within the normal range of the past few months. Notice that the spread between savings and 3-year CDs that we saw widen in the spring is still there, a sign that the economy is poised for expansion. One wonders who will blink first: will longer term CD yields come down in the absence of any sign of inflation, or will short term savings and CD accounts rise as the economy strengthens?

Based on this data, it would seem that any rate increases won't come until sometime in 2010. I would stay short-term and wait. An improving economy and a glut of Treasury debt will eventually put some pressure on rates.

The spread between the average BestCashCow savings rates and 36-month CD rates remains steady as the economy stabilizes and investors, banks, and consumers wait to get the next read on where the economy is going.


Savings and CD Rates Drift Lower - Rate Update Sept 4, 2009

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Even as the economy continues to show signs of firming and the stock market continues its upward trend, the rate on savings accounts and many CDs continue their downward movement. It's clear that until the Fed raises the Fed Funds rate, money markets, cds, and savings accounts will pay low yields. The only consolation is that inflation remains low, meaning the actual inflation adjusted return is higher.

As the chart below shows, savings as well as 12-month and 36-month CD rates moved down again last week to their lowest levels since we began tracking rates. The slope of the decline has slowed and is now more like a slow downward drift. It seems that like the economy, that we have probably hit bottom, or are close to it. The average savings rate according to the BestCashCow rate tables has fallen from 3.64% APY last year to 1.77% APY today. The rate you'll have find at your corner bank is probably a good deal lower.

There's no significant change to report in the spread between savings rates and 36-month CDs. The spread ticked up a bit but nothing that isn't within the normal range of the past few months. Notice that the spread between savings and 3-year CDs that we saw widen in the spring is still there, a sign that the economy is poised for expansion. One wonders who will blink first: will longer term CD yields come down in the absence of any sign of inflation, or will short term savings and CD accounts rise as the economy strengthens?

I still think that the bias is towards rate increases later in the year so I would stay short-term and wait. An improving economy will force the Fed to eventually raise rates, and that will cause yields to start rising.

The spread between the average BestCashCow savings rates and 36-month CD rates remains steady as the economy stabilizes and investors, banks, and consumers wait to get the next read on where the economy is going.


Savings and CD Rates Continue Fall Even As Economy Stabilizes

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

Savings and CD rates continued to drop over the summer even as the stock market went on one of its longest winning streaks in history, shooting above 9,000 and getting giddy analysts to call for it to rise above the 10,000 mark before long.

August 17, 2009 Update

I wrote the following back in June, before the lazy days of summer:

"Individual bank rates may fall a bit from here but for the most part rates seem to have bottomed, as shown by the chart below. Even savings accounts, the most liquid and sensitive to the Fed Funds Rate (currently at 0%) has flatlined and is no longer on its steep downward slope. Indeed, we've even seen a few banks increase their rates."

Ah, if only that were true. Savings and CD rates continued to drop over the summer even as the stock market went on one of its longest winning streaks in history, shooting above 9,000 and getting giddy analysts to call for it to rise above the 10,000 mark before long.

As the chart below shows, there was nothing to be optimistic about from a savings or cd rate perspective. The average savings account rate according to the BestCashCow rate table is paying 1.8% APY. And those are the top rates in the country! If you walk into Bank of America or Chase, they'll ask you to pay them - practically. Last year at this time, the average savings rate was 3.6% APY. Nothing to write home about but still a lot better than today. The story is much the same with CDs.

The average 12-month CD rate is only slightly better than the savings account rate at 2% APY and banks will pay you 3.22% APY to lock your money in for 5 years.

As the chart below shows, the spread between savings rates and 36-month CD has remained fairly steady over the summer - both have gone down!

So what's a saver to do? With the economy looking like it's on the mend and the Fed and government still pumping trillions, it's hard to justify locking money into a long-term CD. The time to do that was 18 months ago when rates were 5% APY+. For now, I think it's best to stay short-term and wait. An improving economy will force the Fed to eventually raise rates, and that will cause yields to start rising.

The spread between the average BestCashCow savings rates and 36-month CD rates remains steady as the economy stabilizes and investors, banks, and consumers wait to get the next read on where the economy is going.