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Is the Fed Rate Hike Already Affecting Rates?

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The following post is from our analyst, Rodney, and is part of an ongoing series of articles that seek to take a deeper and more concerted look into what we can glean from our proprietary depository banking data set.

The recent Fed rate hike thrilled depositors who had been patiently waiting and longing for years for an increase in rates on their deposit products. Now those same depositors are actively anticipating the advent of a new season of higher rates as the initial hike brings with it the prospects of the first taste of the increase they have been expecting.

The hike was also exciting for DepositAccounts; so, in our excitement, we took a look into our database of hundreds of thousands of daily-tracked rates to see what sort of change the rate hike might already be generating. More succinctly, we checked to see if financial institutions were responding quickly and already beginning to increase their rates on the heels of the rate hike.

We began this exercise by researching the percentage of financial institutions that showed an increase in deposit rates (on 1-, 2-, 3-, 4-, and 5-year CDs, checking, savings, and money market accounts) in the three weeks following the rate hike and compared the findings to the same three-week period last year as a "control" period. The results of our analysis were as follows:

Percent of Financial Institutions With Increasing Deposit Rates-Post Rate Hike vs. One Year Prior

As it turns out, just over .5% of the approximately 7,500 financial institutions we monitor posted an increase in rates in the three weeks following the rate hike. Comparatively, increasing rates were found in approximately .9% of institutions during the same period one year ago.

However, when we researched the growth in APY of the same eight deposit products across the three weeks following the Fed rate hike, we found some rather interesting results. Compared again to the same control period mentioned above, a higher average APY gain was recorded for every product following the Fed hike, except 3 Year CDs (which was basically flat) and checking. As you can see in this chart, the period after the Fed hike showed substantially higher APY increases in all CD products than did the prior year period, save the one product on which both showed the same rate–3 Year CDs:

Percentage Increase in APY on CDs-Post Rate Hike vs. One Year Prior

Aside from one oddity in the checking rates, the liquid account rates also showed substantially higher increases in average APY after the rate hike vs. during the same period the year prior:

Percentage Increase in APY on Checking and Savings-Post Rate Hike vs. One Year Prior

These sharper increases in average APY were in spite of the fact that a smaller percentage of financial institutions overall were increasing their rates, as we saw above. As such, this movement is driven by the combination of: i) fewer institutions’ decreasing their rates (thereby weighing down on the overall average APY gains) this year vs. last and ii) rate increases that are larger in magnitude than the ones from the year prior.

So while these rate changes already indicate movement in a positive direction (albeit in still-small amounts over a very short time period), the fact that average rates are increasing at a much higher clip in spite of many institutions' having not yet moved in reaction to the Fed hike is encouraging. This data could indicate that we could see sharper increases in the coming months as other institutions jump on board with similarly substantial increases and push the averages higher.

Stay tuned for more analysis on recent rate trends on Monday!

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  |     |   Comment #1
This is a joke. The Fed is going to run.....not walk.....to sink rates. The .25 increase was a token and window dressing. Rates will tumble. Look at the market today. No way the Fed will ever raise rates again. Lock in the highest rate you can ......now.
  |     |   Comment #2
I dont think the rate rise charts make any difference if their coming from small to start with rates.
If we see a bump in rates from banks that already have competitive rates then maybe others will.

Anonymous.....on the bandwagon. an increase is an increase, you lose
John Sears
  |     |   Comment #3
Great article; thanks.  The two slightly higher rates I've seen on 5 year CDs (i.e., more than 2.25%) both had outrageous penalties; one was two years, another 1 1/4 years.
  |     |   Comment #4
Paltry increases in CD rates do not motivate me to move from paltry interest deposit accounts.   Here's hoping the best has yet to come.  Tired of being fed a few miserable crumbs.  I do appreciate this site and thank Ken for his efforts.
  |     |   Comment #5
Ally Bank used to be in the forefront of rate increases. What happened ?
I would have thought this bank would have increased their 5 yr CD rate
above 2.00 percent.  I really like Ally Bank but thinking about renewing my
5 yr CD coming soon to another bank. 
  |     |   Comment #6
Here is why Ally Bank is not so competitive with other banks when it comes to the highest rates on deposit accounts.

FDIC Steps In to Keep Ally Bank’s Interest Rates Lower
The letter from the ABA admonished the FDIC for allowing Ally Bank, formerly GMAC Bank, to offer the highest rates or rates among the highest in the country in order to seek more deposits and grow their business. It is unfortunate that the ABA should want to see banks lower interest rates on savings products and to let FDIC force them to do so. Millions of people rely on savings interest for living, and banks should want to encourage higher rates whenever possible.
  |     |   Comment #7
Do you understand capitalism? Banks want to pay you the lowest rate possible, just as their shareholders expect. The ABA? Think again who they represent.
  |     |   Comment #10
Well, as of January 20, 2016 voices are being heard to say the FED will not only hold off on further rate hikes but will probably revisit QE before long. The global economy/debt quagmire is only beginning to be exposed and it doesn't look pretty. Basic economic principles still apply and chickens do come home to roost.

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