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Fed Wraps Up Meeting Today – Will Savings Rates Move Higher?

The Federal Reserve wraps up their two day meeting today and is widely expected to reduce their purchases by another $10 billion a month of mortgage-backed securities and long term U.S. Treasuries. A $10 billion reduction would reduce their purchases to $55 billion a month, down from $85 billion a month in 2013. Reducing their monthly purchases will gradually send long term bond rates and mortgage rates higher but won't increase savings rates.

Savings Rates To Remain Low for Now

Savings account rates, CD rates, and all deposit rates will remain near current levels until the Fed increases the fed funds rate. The current rate is near zero percent and has been at this level since December 2008. The Fed isn't expected to increase the federal funds rate in this meeting but might change their outlook on when the rate will be increased.

In December 2012, the Fed said that it planned to keep the fed funds rate near zero percent as long as the unemployment rate stayed above 6.5 percent. In December 2013, the Fed changed this policy and said when the 6.5 percent unemployment is breached it shouldn't be seen as a trigger for a higher fed funds rate.

For many years now, the Fed has said that the fed funds rate will "remain low for quite some time."  What we're looking for now is when the Fed will change that language into something that will point to a more finite timeframe. The economy is gaining momentum and the unemployment rate is at 6.7 percent, so that change might happen when the minutes to today's meeting are released.

Projections for a Higher Federal Funds Rate

A Summary of Economic Projections was released right after the December 2013 meeting and in the predictions a majority of Fed participants forecasted a need to increase the fed funds rate sometime in 2015. Only 2 participants believed there would be a need to increase the rate this year. It will be interesting to see if these projections change at all in the current meeting.

Even if the forecasts are for a higher fed funds rate sooner than later, deposit rates won't increase until the Fed actually increases the rate. Some banks and credit unions will increase deposit rates in 2014 but overall the majority of financial institutions won't. Based on the Fed's current forecasts, we won't see higher deposit rates until mid 2015.

Average Savings Account Rates

Average savings account rates and money market account rates (account balances of at least $10,000) reported by are currently at 0.46 percent, unchanged from last week's average rate. In the Federal Deposit Insurance Corporation's weekly rate survey, average savings rates are at 0.06 percent.

The average rate reported by of 0.46 percent is derived from rates offered by banks and credit unions listed on our rate table. The FDIC's national average rate is calculated based on a simple average of rates paid (uses annual percentage yield) by all insured depository institutions and branches for which data are available.

Best Savings Account Rates

The best savings account rates in our database this week remain just under 1.00 percent at 0.95 percent. We have two banks offering savings rates at 0.95 percent, CIT Bank and GE Capital Retail Bank (Optimizer Plus Savings Account).  The second highest savings rate in our database this week is at 0.90 percent from Barclays Bank, GE Capital Retail Bank, and The Palladian PrivateBank.

The third highest savings rate in our database is from Ally Bank at 0.87 percent. The fourth highest rate is from four different banks, GE Capital Retail Bank, Colorado Federal Savings Bank, Discover Bank and, FNBO Direct. These four banks are currently offering savings rates at 0.85 percent.

Best Money Market Account Rates

The best money market account rates in our database are slightly below the best savings rates. The highest money market rate in our database is from Union Federal Savings Bank and Sallie Mae Bank at 0.90 percent. Sallie Mae Sallie Mae Bank is the banking division of the student loan company Sallie Mae.

The second highest money market rate in our database is from EverBank at 0.86 percent. The third best rate this week is from four different banks, Ally Bank, GE Capital Retail Bank, Discover Bank and FNBO Direct. All four banks are offering MMA rates at 0.85 percent. The fourth highest rate this week is from ableBanking, (a division of Northeast Bank) and First Internet Bank of Indiana at 0.80 percent.
Author: Brian McKay
March 19th, 2014