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Will Sequestration Force CD Rates Lower?

President Obama has started sending out notices to all government departments about cuts needed to be made due to the sequester. Most economists believe the federal cuts will subtract about 0.5 percent from GDP growth from the already lackluster 2.00 percent growth in 2013. The verdict is still out on whether or not sequestration will force CD rates lower but even if it doesn't, don't expect rates to move higher this year.

Current 1 year bank CD rates are averaging 0.23 percent in the FDIC survey this week, unchanged from last week's average CD rate. The best CD rates on 1 year certificates of deposit this week are also unchanged at 1.04 percent with an APY of 1.05 percent. There is one reason why CD rates will remain low in 2013.

The rates will remain low due to the Federal Reserve Open Market Committee (FOMC) policy of keeping the federal funds rate near zero percent. In fact, the FOMC plans to keep the fed funds rate at zero percent until the unemployment rate falls below 6.5 percent. The FOMC believes this will happen at the end of 2017 which means CD rates at banks will also remain low until then.

If sequestration causes a recession in 2013, bond yields and CD rates will fall. 10 year bond yields have already fallen to 1.85 percent this past week, down from just above 2.00 percent. Average CD rates remain steady for now but overall, most banks and credit unions continue to lower CD rates as a result of the FOMC's policy.

Following is a list of the highest CD rates this week on 12 month certificates of deposit:

  • GE Capital Retail Bank 1.04% APY 1.05%

  • Colorado FSB 1.04% APY 1.05%

  • California First National Bank 1.00% APY 1.00%

  • Home Savings Bank 1.00% APY 1.00%

  • Doral Bank 0.98% APY 0.98%

  • Ally Bank 0.97% APY 0.97%

  • Able Banking 0.95% APY 0.95%

Author: Jason P. Jones
March 4th, 2013