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Fed Holds Rate Unchanged, Effects on Savings Account and CD Rates?


As expected, the Fed decided to keep rates unchanged. The target for the federal funds rate remains at 2%. Based on the Fed's statement, my guess is that the Fed will remain on hold for a while. It did say that "uncertainty about the inflation outlook remains high", but it also said it "expects inflation to moderate later this year and next year." Another sign that the Fed will hold steady is the following phrase that was also mentioned in April: "the substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time."

So it looks like it's going to take continued high inflation without any major economic downturn before the Fed starts hiking rates. I have a feeling this will reduce some expectations for big future rate hikes. So we may see a slowdown in the recent long-term CD rate increases. We now have several banks offering long-term CD rates of 5%+ and 12-month rates of 4%+. These rates may not go up much from here at least in the short term.

For savings account rates, there are many paying over 3% now. But with the fed funds rate at 2% and potentially holding for several months, banks may want to bring down their savings account rates. Competition should at least slow this drop. As we saw after HSBC Direct started its 3.50% savings account promo, several banks followed with their own rate hikes. The HSBC promo is scheduled to last through August, 15th. The next Fed meeting is scheduled for August 5th. If the Fed continues to hold steady with no significant signs of future rate hikes, I wouldn't be surprised to see HSBC drop their rate back down to 3.05% or even lower.

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Anonymous   |     |   Comment #1
I appreciate your site but I have noticed something that you regularly do that makes me nuts! Why do you brodcast the fact that you think the banks will lower rates? or say something like....I don't expect rates to go up from here anytime soon.....or.... this bank is offering a very high rate that i doubt will be matched ( I ma paraphrasing).... I dont know how well read your site is but maybe banks are looking at it and thinking..."Well, the public does not think we will raise rates anymore, so let's don't" It shows them that we are satisfied with the low rates they offer now. Please dont take it the wrong way... I really enjoy the site, but let's jawbone the banks to get those rates higher!!
Banking Guy
Banking Guy   |     |   Comment #2
Perhaps I was too pessimistic on future rates.

I have to admit these are just guesses about future rates. I do hope that bank rates will rise. But I don't want to be overly optimistic without some justification.

The best way that we can influence the rates that banks offer is to not settle for low rates and be willing to transfer money to the bank with the best rates (even if it's not much more interest). It also helps to ask your current bank to match the rate. That'll let them know why you're moving the money. I probably need some posts highlighting this so we can help increase the competition.
Banking Guy
Banking Guy   |     |   Comment #3
I should have also mentioned this BestCashCow article which describes how the banks may be forced to raise rates even if we don't get any help from the Fed.
Bozo   |     |   Comment #4
To: Banking Guy
Re: Rates and Competition

It never hurts to ask, as in, asking a financial institution to meet other published rates. Sometimes it works, sometimes it doesn't. I can tell you that I asked the CSR at Alliant if Alliant would meet the rates offered by others, and she said they were unable to do so. But she also said she would pass along my query to management, so, you never know.

Blogs like this have a much greater impact than some might suspect. Alliant advertises here, for example. I doubt Alliant would want to advertise on a blog where it is bashed. Seems a tad counter-productive, if you get my drift.

So, Colleen, if you read this, you might want to "get nimble" (that's an inside joke to Colleen, the Alliant CSR).


O-Qua Tangin Wann
O-Qua Tangin Wann   |     |   Comment #5
I appreciate your commentary and speculation, Banking Guy.

Keep it up!

Banks are going to do what they want to do concerning rates no matter what you say or don't say in your blog.

~O-Qua Tangin Wann
Anonymous   |     |   Comment #6
The FED will raise rates the first meeting after the Presidential election.
Anonymous   |     |   Comment #7
Banking Guy, thank you for all that you do. Thank you for all of your opinions. You are the best. To the public, please don't bash banking guy. THAT drives me nuts. Very rude considering all the useful information we receive here because of banking guy's hard work.
Anonymous   |     |   Comment #8
I'm new to this site but it is, by far, the BEST one I have found for info on CDs! Banking Guy really cinched it for me when he mentioned we should also look at Early Withdrawal Penalties. I don't use a couple of banks in my city no matter what their rates are because of the horrible penalties! My thanks and appreciation to Banking Guy and to all who share helpful info with us on CDs and banks etc.