With the major new actions announced by the Fed yesterday, we may see another round of deposit rate cuts. To get an idea about what to expect, I thought it would be interesting to see how CD rates have changed after past Fed accommodations. I would like to think that CD rates are near a bottom, but as we learned over the last 4 years, rates can keep falling.
I looked at 5 top 5-year CD rates right before the Fed meeting and about a month after the meeting. I included the 4 FOMC meetings since 2009 in which the Fed announced either quantitative easing (QE1 and QE2) or a change to its low-rate guidance. The low-rate guidance is the language in the FOMC statement in which they say "exceptionally low levels for the federal funds rate at least through late 20??."
In all 4 cases, the CD rates fell. Below are the 4 Fed meetings and how the average 5-year CD rate from the top 5 CDs changed before and after the meetings:
- QE1 announced on March, 18 2009 - Before: 3.83%, After: 3.67%, Change: -16 bps
- QE2 announced in November 3, 2010 - Before: 2.69, After: 2.62%, Change: -7 bps
- Mid-2013 guidance announced in Aug 9, 2011 - Before: 2.51%, After: 2.40%, Change: -11 bps
- Late-2014 guidance announced in Jan 25, 2012 - Before: 2.07%, After: 1.90%, Change: -17 bps
The good news is that we didn't see any big drop for all of the rates. However, some institutions did have big rate cuts. For example, in January 2012 when the Fed changed its guidance from mid-2013 to late-2014, Melrose Credit Union slashed its 5-year CD yield from 2.68% to 2.27% within a week of the change.
No one wants to lock into today's low CD rates, but for money that you want to keep 100% safe, there are no good options. You can also keep that money completely liquid in a savings or checking account. However, if rates stay low or keep falling, CDs could provide you with more interest. I remember in February 2009 I posted on Third Federal's 4.00% 6-year CD. One commenter said he thought 6-year CDs were "crazy". That 6-year CD looks pretty good today.
Searching for Top CD Rates
To search for nationwide CD rates and CD rates in your state, please refer to the best CD rates section of DepositAccounts.com.