web statistics

CD Rates Move Higher This Week – Biggest Increases Will Come in 2015

RSS
Follow by Email
Facebook
Google+
Twitter
Banks and credit unions continue to increase CD rates on both short term and long term certificates of deposit. Overall, the increases have been marginal but at least the direction is higher. After six years of writing about lower certificate of deposit rates its a nice change to write about rates moving up.

The biggest changes in rates this week are on 2 year certificates of deposit. Two credit unions, Chartway Federal Credit Union and HeritageWest Credit Union, are now offering the best rate on the rates tables at 1.25 percent with an APY of 1.26 percent. We now have 26 banks and credit unions offering 24 month rates at 1.00 percent or higher. These increases have sent the average 2 year CD rate higher this week to 1.13 percent, up from last week's average rate of 1.09 percent.



Deposit rates will start moving much higher in 2015, when the Federal Reserve is expected to increase the fed funds rate. Exactly when rates will move higher in 2015 is debatable but minutes from the Fed's July meeting showed that policymakers discussed raising rates sooner than later.

Esther George, the president of the Kansas City Fed, also commented on CNBC about the disconnect between the markets and the FOMC's forecast on rates. The Kansas City Fed said:
There's a lot of complacency right now, and if you look at the market path for interest rates relative, for example, to ... the FOMC's projections, you will see that those have been far apart.

Most economists expect the Fed to increase rates in the summer of 2015. I believe the increase will come sooner because "full employment" will be reached by the end of 2014 and inflation will increase above 2.00 percent by early 2015. The Fed has stated rates will move higher when these two events occur. The Fed will be forced to increased the fed funds rate sometime in the first quarter of 2015.

Normalizing policy will require the Fed to increase the fed funds rate rather quickly. By the end of 2015, the fed funds rate will probably be somewhere between 2.00 percent and 3.00 percent. This will force 1 year CD rates and variable interest rate accounts to around 3.00 percent or higher.

You can check on current rates by checking our rate tables: Current CD Rates.
 
Author: Brian McKay
August 21st, 2014