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New Leaders on our 1 Year CD Rates List as Greece Votes No to More Austerity

We have three new leaders on our 1 year certificate of deposit rate list. Synchrony Bank, CIT Bank and Sallie Mae Bank are all offering 1 year CD rates at 1.24 percent with an APY of 1.25 percent. Last month the best 1 year CD rate was from Colorado Federal Savings Bank at 1.34 percent with an APY of 1.35 percent.

We should see more banks and credit unions increase CD rates in the coming months when the federal funds rate is increased. The Federal Open Market Committee is expected to increase the federal funds rate during their September meeting.

No to More Austerity in Greece

Greeks voting no to the referendum for more austerity on Sunday (see #grexit) could throw a monkey wrench into the FOMC's plans for increasing the rate. We will have to see how the news coming out of Greece plays out in the markets in the coming weeks and months.

Eventually the best CD rates available will move higher by larger amounts when the fed funds rate is increased, hopefully this will all pay out sometime in 2015. The fed will probably increase the rate in 25 basis point increments, which will send CD rates higher in 25 basis point increments.

Best 1 Year CD Rates Will Move Towards 1.50 Percent in 2015

Banks have already increased CD rates by small amounts over the past year and the highest rates available have also moved higher. Looking back a year ago, the highest 1 year CD rate available was at 1.05 percent, now the best rate is 20 basis points higher.

When the FOMC finally increases the fed funds rate it will probably be by 0.25 percent. When the increase happens, we expect the best 1 year CD rates to move towards 1.50 percent. The last time 1 year CD rates were around 1.50 percent was 4 to 5 years ago.

1 Year CD Rates to Hit 5.00 Percent in Coming Years

When the cycle of higher rates starts it should last at least three to four years. When the FOMC stops the rate increases will depend on economic growth and employment growth. At the peak the federal funds should be around 4 percent to 5 percent. The fed funds rate that high will send 1 year CD rates above 5.00 percent. The last time we saw 1 year rates that high was a decade ago just before the financial crisis.

Author: Brian McKay
July 6th, 2015