Weekly Deposit Rates, Best Rates Remain at 1.00%

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The best savings rates remain at 1.00 percent and the best money market rates remain at 0.90 percent this week. Don't expect any big changes in deposit rates anytime in 2014 because of the Federal Open Market Committee's policies to keep rates low. The FOMC released their statement on monetary policy after concluding their two day meeting. There were no surprises in the statement and no signs of higher deposit rates anytime soon.

FOMC Keeps Federal Funds Rate Near Zero Percent


The FOMC announced on January 29 that the federal funds rate will remain near zero percent and that they would also reduce their monthly purchases by another $10 billion a month. The past two months, the Fed has reduced their purchases of long term bonds and mortgage backed securities (MBS) from $85 billion to $65 billion.



The decision to keep the fed funds rate in a targeted range of zero percent to one quarter percent will keep all deposit rates low. There will be some banks and credit unions increasing their deposit rates to compete with the best rates available but there won't be any broad increases in rates in 2014.

If the Fed doesn't increase the fed funds rate, 2014 will mark the sixth consecutive year of low savings rates, money market rates, and CD rates. While it doesn't look like deposit rates will increase much this year, mortgage rates will be moving higher. As the Fed continues to taper their purchases each month, bond rates will start moving higher and mortgage rates will follow suit.

Bond yields initially declined when the Fed started tapering in January because equity markets plunged on the news. As investors sold equities they bought bonds and when bond prices move higher, bond yields move lower.

Higher Deposit Rates in 2015


CD rates, savings rates, and money market account rates won't increase unless the unemployment rate falls below 5.5 percent, which is considered maximum employment or if the outlook for long term inflation is higher than 2.5 percent. If the economy strengthens, we might actually hit full employment sometime late in 2014. That's unlikely, so any major upside in deposit rates won't come until 2015 when we will may hit full employment.

Only two FOMC members believe there will be a need to increase the fed funds rate in 2014, with one member believing the rate will be increased to 1.25 percent this year. The majority of members have forecasted a need to increase the rate in 2015 which is why deposit rates won't move higher until then.

This chart shows when Committee members believe there will be a need to increase the rate and where the rate will be.

Fed Funds Rate 2015 and 2016

2.00 Percent Deposit Rates in 2015 Very Possible


The chart about shows an increase in the fed funds rate is likely for 2015 because a majority of Fed members believe there will be a need to increase the rate. Even if there is an increase in the rate, most members believe the rate will still be below 1.00 percent. If this forecast plays out, the highest interest rates on variable rate accounts will be around 2.00 percent. The best CD rates on 1 year certificates of deposit will also be around 2.00 percent.

Deposit rates around 2.00 percent are still not that high when you look back at historical rates, but when you compare 2.00 percent rate to the current rates of 1.00 percent, things start to look better. Below are listed the highest savings rates and money market rates for this week.

Top Possible Rates around 4.50 Percent in 2015


Interest rates are headed higher and 2.00 percent rates are very likely but rates might go even higher. One Fed member believes the fed funds rate will have to be raised to 3.25 percent in 2015, if that happens deposit rates could move as high as 4.50 percent. Obviously, 4.50 percent deposit rates are unlikely unless the economy takes off and inflation becomes a concern for the Fed.

Looking past 2015, it's more and more likely that deposit rates will move towards 5.00 percent. The last bank I can recall offering a 5.00 percent 1 year CD was Washington Mutual, a bank that was a casualty in the financial crisis. In a desperate move to shore up their deposits they were offering 5 percent 12 month and 13 month CD rates in 2008 when most other banks were offering around 2.50 percent.

Highest Savings Rates



  • First Trade Union Bank Savings Rate 1.00%

  • CIT Bank Savings Rate 0.90%

  • Barclays Bank Savings Rate 0.90%

  • GE Capital Retail Bank Optimizer Plus Savings Rate 0.90%

  • GE Capital Retail Bank Rate 0.90%

  • Ally Bank Savings Rate 0.87%

  • The Palladian Private Bank Savings Rate 0.85%

  • Colorado Federal Savings Bank Savings Rate 0.85%

  • Discover Bank Savings Rate 0.85%


Highest Money Market Rates



  • Sallie Mae Money Market Rate 0.90%

  • Union Federal Savings Bank Rate 0.90%

  • EverBank MMA Rate 0.86%

  • GE Capital Retail Bank Optimizer Plus MMA Rate 0.85%

  • Mutual of Omaha Bank MMA Rate 0.85%

  • First Internet Bank of Indiana Rate 0.80%

  • ableBanking, a division of Northeast Bank 0.80%

  • Bank of Internet USA Rate 0.75%

  • Capital One 360 Rate 0.75%

 
Author: Brian McKay
February 2nd, 2014