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CD Early Withdrawal Penalty: Should You Pay It?Pause in Rate Hikes? Effects on Savings Accounts/CDs?
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POSTED
ON BY Ken Tumin
Fed Chairman Ben Bernanke gave some signs while speaking to Congress today that the Fed may pause in its 22-month rate hike campaign.
As this Reuters article describes, there is more doubt about another rate rise by the Fed in June. The Fed is still widely anticipated to lift rates for the next Fed meeting on May 10th from 4.75% to 5.00%.
Future Rates on Savings Accounts? CDs?
I think it's safe to say that we won't be seeing interest rates rise like they did last year. Last year, the yields on internet savings accounts increased by around 0.75% to 1.5% (see chart). Last August, Corus Bank's 6-month and 12-month CD were at 4.04% and 4.37% APY. Now they're at 5.15% and 5.30% APY. So with a slow down of interest rate hikes, we probably shouldn't expect this same change over the next year. Let's say we only see half the rate change. So next year, we would see savings account rates about 0.5% to 0.75% higher than today. So EmigrantDirect may only be around 5% to 5.25%. GMAC Bank may be around 5.50%. Corus Bank's 1-year CD rate may be around 5.80% or about 0.50% higher than today.
Long Term CD Rates?
Lately there have been signs of increasing long term rates. So we may see more deals in longer term CDs like the new 6% 3-year CD at Penfed (see post).
With increases in long term rates, CD ladders may make more sense. I describe in this post a special type of CD ladder that can be done at Self-Help Credit Union (SHCU). SHCU's certificates of deposit have the nice feature of allowing additional deposits. With only a $500 minimum deposit requirement, you can buy long term CDs with only $500. If rates go down, you just add to the long term CD. SHCU has some decent CD rates although they change daily. They usually change by only a few basis points, but there have been a couple of occasions in the last 6 months when they've changed by up to 0.50%. SHCU's CD rates have been improving lately. The 5-year, 2-year and 1-year CD APYs are currently at 5.38%, 5.30% and 5.04%.
As this Reuters article describes, there is more doubt about another rate rise by the Fed in June. The Fed is still widely anticipated to lift rates for the next Fed meeting on May 10th from 4.75% to 5.00%.
Future Rates on Savings Accounts? CDs?
I think it's safe to say that we won't be seeing interest rates rise like they did last year. Last year, the yields on internet savings accounts increased by around 0.75% to 1.5% (see chart). Last August, Corus Bank's 6-month and 12-month CD were at 4.04% and 4.37% APY. Now they're at 5.15% and 5.30% APY. So with a slow down of interest rate hikes, we probably shouldn't expect this same change over the next year. Let's say we only see half the rate change. So next year, we would see savings account rates about 0.5% to 0.75% higher than today. So EmigrantDirect may only be around 5% to 5.25%. GMAC Bank may be around 5.50%. Corus Bank's 1-year CD rate may be around 5.80% or about 0.50% higher than today.
Long Term CD Rates?
Lately there have been signs of increasing long term rates. So we may see more deals in longer term CDs like the new 6% 3-year CD at Penfed (see post).
With increases in long term rates, CD ladders may make more sense. I describe in this post a special type of CD ladder that can be done at Self-Help Credit Union (SHCU). SHCU's certificates of deposit have the nice feature of allowing additional deposits. With only a $500 minimum deposit requirement, you can buy long term CDs with only $500. If rates go down, you just add to the long term CD. SHCU has some decent CD rates although they change daily. They usually change by only a few basis points, but there have been a couple of occasions in the last 6 months when they've changed by up to 0.50%. SHCU's CD rates have been improving lately. The 5-year, 2-year and 1-year CD APYs are currently at 5.38%, 5.30% and 5.04%.