Dedicated to Deposits: Deals, Data, and Discussion

The Fed Holds Steady - Effect to Savings Accounts and CDs?

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The Fed kept the target federal funds rate at 5.25% today, and it looks like this hold pattern will continue. One analyst was quoted in this CNN article as saying "I feel like the Fed is going to be on hold. I think they'll probably do nothing for the whole year."

So what does this mean for savings accounts and CDs? We should see some higher rates. For much of the second half of last year, the pundits were all expecting the Fed to cut rates at least twice this year. With expectations of a slowing economy, long-term CD rates went down most everywhere. Now we're seeing CD rates creeping up. I would expect this to continue.

Financial experts quoted in this Wallstreet Journal Article (via post-qazette.com) are now recommending moving more money into short-term CDs (6 months and less) and money market accounts. However, the article mentions the risk in this. If rates fall, your returns will also fall. That's where CD ladders can come in handy to give you a mix of liquidity and protection against falling rates. One financial advisor is now recommding ladders with maturities from 3 months to 15 months rather than 1 to 5 years.

Thanks to the reader who mentioned this Wallstreet Journal article.


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Comments
5 Comments.
Comment #1 by SVG (anonymous) posted on
SVG
Banking Guy,

>>Financial experts quoted in this Wallstreet Journal Article (via post-qazette.com) are now recommending moving more money into short-term CDs (6 months and less) and money market accounts.<<

Hmm ... Interesting.

My take is that the Short-Term yields are likely to fall and/or Long-Term-Yields are likely to rise.

The yield-curve is inverted. It is into negative already. It is quite unlikely that such a condition will persist.

- SVG

1
Comment #2 by Banking Guy (anonymous) posted on
Banking Guy
Yup, the yield curve seems to be slowly returning to normal. I'm hoping we'll see more rise in longer term rates than fall of short-term rates. But as we've seen with E-LOAN, GMAC and Citibank, this may not be the case.

1
Comment #3 by shrazzy (anonymous) posted on
shrazzy
"I feel like the Fed is going to be on hold. I think they'll probably do nothing for the whole year."

I think they will do something in 07... maybe not now but eventually.

1
Comment #4 by Anonymous posted on
Anonymous
The fed is on hold on rate for 2 cycles now and it seems that the effect so far has been less negative on high yield MMs and short term CDs than longer term CDs.
Seems as if there are continued attractive short terms (12 months or less) CDs deals than there are longer terms (3+ years).

1
Comment #5 by SVG (anonymous) posted on
SVG
I posted a chart of Yield Curve on Jan 21, 2007. The yields in general move at glacial pace, therefore the chart is reasonably 'current'.

- SVG

1