Slow GDP Growth Puts Downward Pressure on CD Rates

Tired of low CD interest rates? Well you can expect more of the same for the rest of 2012 into 2013. The latest economic news showing slower growth is first quarter Gross Domestic Product (GDP). The advance estimate of first quarter GDP came in at 2.2%, which is slower than the 4th quarter 2011 rate of growth of 3.0%.

With growth slowing the FOMC (Federal Open Market Committee) has no incentive to raise the Fed funds rate which will keep interest rates like CD rates, savings rates and mortgage rates low. The FOMC is a committee that makes key decisions about interest rates lowering rates to spur growth and raising rates to slow growth.




Right now national average 1 year CD rates are at 0.76%. There are 1 year bank CD rates higher than the national average. CIT Bank CD rates are paying a rate of 1.07% with an APY of 1.08%.

Two other banks current offering 12 month CD interest rates above 1.00% include Ally Bank CD rates at 1.03% with an APY of 1.04% and MetLife Bank CD rates at 1.04% with an APY of 1.05%.

Think you will do a lot better with a longer term certificate of deposit? Don't count on it. With a yield curve that is almost flat you won't get much higher CD rates with longer term CDs.

The national average 2 year CD rate of 0.81% is only 5 basis points higher than 1 year rate of 0.76%. Going out even longer the rate isn't much better. The current 5 year national average rate is only 60 basis points higher at 1.36%.

While rates won't go higher in 2012 they probably won't go much lower as well. Let's face it even if the best CD rates on 1 year CDs drop just below 1.00% it's only about 10 basis points from where the best rates are now.

If you have a million bucks to deposit in a CD account 10 basis points will earn you just over $1,000 more on an annualized basis, not much if you ask me. Chances are you don't have a million in CD deposits so any further decline in rates won't cost you much in interest.