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CD Rates Will Remain Near Current Levels as Fed Stresses Low Interest Rate Policy

The future direction of interest rates has all eyes remaining on the Fed. The most recent Fed alert was yesterday's release of meeting minutes which showed the Fed staying the course on interest rates for now.

The minutes showed that one of the biggest concerns the Fed participants had was confusing the markets regarding interest rates. Several Fed participants were concerned that a rise in their interest rate forecasts could suggest a faster hike in rates than markets had expected and they took pains to stress that rates would remain very low for some time.

In March, Janet Yellen roiled the markets when she said rates would probably be increased about six months after quantitative easing ended. This would have put an increase in the fed funds rate near April 2015, not the anticipated mid-2015 date. The meeting minutes now point to a higher fed funds rate in mid-2015 or possibly even towards the end of 2015.

The Fed stressed that interest rates will remain low even after the unemployment rate and inflation rate return to normal. If the Fed's prediction is correct, we could have another year or two of low interest rates. The fed funds rate has been in a targeted range of zero percent to one quarter percent since December 2008.

Despite the Fed keeping a lid on interest rates , short term average CD rates are slightly higher this week as some banks increase their rates on 1 year and 2 year certificates of deposit. There will be some banks and credit unions increasing their rates before the Fed increases the fed funds rate, but overall financial institutions won't increase CD rates in tandem until the fed increases the fed funds rate.

Current 1 year CD rates are averaging 0.88 percent this week, an increase from last week's average 1 year CD rate of 0.85 percent. The best CD rates on 1 year CD accounts remain just above 1.00 percent this week at 1.04 percent with an APY of 1.05 percent. The sole bank on our rate table offering that 1 year rate is GE Capital Retail Bank.

Average 2 year CD rates this week are at 1.03 percent, an increase from last week's average 2 year CD rate of 1.01 percent. The best CD rates on 2 year certificates of deposit remain at 1.24 percent with an APY of 1.25 percent. The bank offering the highest 2 year rate and yield in our database is Salem Five. Right behind Salem Five we have two banks, GE Capital Retail Bank and CIT Bank offering 2 year rates at 1.19 percent with an APY of 1.20 percent.

Average 5 year CD rates moved slightly lower from 1.63 percent down to 1.60 percent. The top CD rates on our 5 year certificates of deposit rate list remain at 2.23 percent with an APY of 2.25 percent. The two banks in our database offering the best 5 year rate is Barclays Bank and CIT Bank.

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Author: Brian McKay
April 10th, 2014