2. Fed Holds Rates Steady - Deposit Rate Predictions for 2018

Fed Holds Rates Steady - Deposit Rate Predictions for 2018

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As expected, no policy changes were announced today at the end of the two-day FOMC meeting. The Fed decided to hold off on a rate hike, but slight changes in the FOMC statement point to a higher chance of two more rate hikes this year (which will likely come in September and December). For example, the Fed’s description of the economy went from “solid” to “strong”:

June FOMC statement:

economic activity has been rising at a solid rate.

Today’s FOMC statement:

economic activity has been rising at a strong rate.

Also, the Fed’s description of household spending went from “picked up” to “grown strongly”:

June FOMC statement:

Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly.

Today’s FOMC statement:

Household spending and business fixed investment have grown strongly.

September Fed Rate Hike Odds at 91.2%

The odds of a September Fed rate hike continues to be close to a sure thing according to the Fed fund futures as shown by the CME Group FedWatch Tool. The odds of a 25-bps rate hike in September is now 91.2%. This is about the same as it was eight days ago (91.4%).

The odds that the Fed rate will be at least 50 bps higher in December (most likely a 25-bps rate hike in September and December) went up a little from eight days ago, rising from 67.5% to 70.6%.

Future FOMC Meetings

The next three FOMC meetings are scheduled for September 25-26, November 7-8 and December 18-19. The September and December meetings will include the summary of economic projections and a press conference by the Fed Chair.

Deposit Account Rate Predictions

An important issue for savers is the decision of how much of their savings should go into long-term CDs vs short-term CDs and savings accounts. Long-term CDs are increasingly becoming less attractive as short-term rates rise more than long-term rates. However, we have seen significant upward movement on long-term CDs this year.

Today’s Top Deposit Rates and Comparison to May

Below are today’s top rates for nationally-available savings account, 1-year CD and 5-year CD. I also include the past top ones from May 2nd:

  • Top Savings Account Rate:
    • 2.25% APY, Northfield Bank, Online Platinum Savings - New Money (old rate in May: 2.00% APY, Popular Direct, Exclusive Savings - New Account Rate)
  • Top 1-Year CD (term equal to or close to one year):
    • 2.60% APY, CD Bank, $10k minimum (old rate in May: 2.35% APY, Synchrony Bank, 14-month CD Special, $2k minimum)
  • Top 5-year CD (term equal to or close to five years):

The interesting thing to note from above is that the top 5-year CD rate had the largest increase. That’s a positive sign that we may see 4% 5-year CDs by late this year or early next year. So if you’re deciding when to lock into a 5-year CD, you may want to wait.

It’s possible that we may not see much more rise in long-term rates, but with the prospect of strong economic growth continuing, there’s a good chance we’ll see higher 5-year CD rates in the next year in my opinion.


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30 Comments.
Going Up?
Going Up?   |     |   Comment #1
Besides helping us earn more money in on savings accounts, I am really hoping for a 3rd quarter rate of inflation for those of us who depend on social security. I hope the 3rd quarter will rise significantly. Us older folks hope to recover the very small and sometimes no pay increases under Obama.
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Free Dumb
Free Dumb   |     |   Comment #3
Alas, that is not how inflation works.
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bank6
bank6   |     |   Comment #4
With rates rising many people will be opening new bank accounts to get promotional rates. I noticed from the news yesterday that someone took issue with the guy from the 'Witch Hunt' investigation, in that he had 30 bank accounts. Some commentator stated that it is not a crime to have 30 bank accounts. So, I was just wondering if any of you guys with many/several accounts have found that it causes you problems?...…….Is it a problem to have 30 bank accounts?.....I suppose if you had $300K and you spread it out with $10K CD's you could easily have 30 accounts.
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Luvcd
Luvcd   |     |   Comment #5
30 bank accounts that are overseas is a problem if not disclosed on tax return. Then if income is moved into those overseas (or any) accounts and not reported is another problem. Those are the primary issues facing from the "news yesterday" person you allude to.
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deplorable 1
deplorable 1   |     |   Comment #7
No problems for me other than the time it takes to maintain them. Back when interest rates were higher I only had 3-5 accounts but all this rate chasing and locking in CD's with banks and credit unions that sometimes also require savings and checking accounts just to ACH out it doesn't take all that long to get to 30. As a prime example NFCU requires you to have a checking account just to do a 3rd party ACH pull.
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dale
dale   |     |   Comment #13
Some have inactivity fees so you need to do a small deposit annually
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scott
scott   |     |   Comment #10
I only had about 5 accounts at various banks, but my mortgage loan officer inquired why I had several like it seemed excessive. Didn't seem to cause any problems, but I guess they look at it when considering you for loans. This was 10 years ago. Also, you may need to provide statements from all for various financial activities you may participate in, so that can also be a hassle.
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deplorable 1
deplorable 1   |     |   Comment #14
It's none of the loan officers business unless you are using your bank accounts as collateral to secure the loan. Then they will need a statement of each account. There is no limit on how many bank accounts, CD's, credit cards or investments you can have. They are just used to the typical person(the clueless masses) who just has one checking account paying 0% APY and one savings account paying .10% APY. My loan officer thought I was crazy when I only took out a $80,000 loan to buy my first house because I qualified for a million dollar loan. This was long before the housing crisis when everyone thought that home prices were going to rise forever. Then the housing crisis happened and the loan officer lost his job and his house.
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Att
Att   |     |   Comment #20
The mortgage company will require copies of your income tax forms ( you fill out a form the lender sends to the IRS so they can access them) so they can see what banks and other institutions you have holdings with and your income sources such as employment and investment income. They also ask for information on investments which will help with the mortgage approval.. I had to show 3 months of statements from the account I was using to fund my down payment. I had a large amount of money that went into that account to pay my down payment from a large stock sale. The underwriters wanted information on this transaction before they would approve my mortgage.
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Dunmovin
Dunmovin   |     |   Comment #24
ATT... to a degree this is funny...why? B/c in anti-deficiency states the lender can ONLY look to the property for recourse on purchase money/owner occupied homes, I.e. no personal liability
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DCGuy
DCGuy   |     |   Comment #15
I have well over 30 accounts and nobody has been suspicious about it. I think most people tend to deal with only one or a very few number of banks out of simplicity sakes. I spread out the deposit money so that it follows the mantra of do not put all of your eggs in one basket. Better to have multiple options and backups instead of just one.
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Pablosavin
Pablosavin   |     |   Comment #23
i have over 60 cds in at least 20 different banks / credit unions. Just use an excel sheet and keep track. Gotta collect something!
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deplorable 1
deplorable 1   |     |   Comment #11
Well when inflation rises interest rates go up as the FED hikes rates to combat inflation. So you may get a COLA and higher interest on savings at the same time. When was the last time that happened?
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///
///   |     |   Comment #12
Jun 4, 2018 - The annual Social Security cost-of-living adjustment for 2019 could top 3% in 2019, which would be the largest increase in seven years, ...
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bank6
bank6   |     |   Comment #17
Thanks for all the input, everyone. Very interesting information.
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CuriousDave
CuriousDave   |     |   Comment #25
Historically, most of the COLA adjustment is eaten up by increases in the Medicare Part B premiums.
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Inflation_Hawk
Inflation_Hawk   |     |   Comment #18
Actually, you should hope for high inflation in July, August and September as measured by the CPI-W.
The average inflation rate for those 3 months in 2018 will be compared against the same in 2017.
It's a strange formula to use. But, that's how it works!
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Luvcd
Luvcd   |     |   Comment #19
And, IBonds will be next in line for a big jump, too!
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1
Anon
Anon   |     |   Comment #2
Ken, Justice FCU has 2-yr CD 3.252% APY ($500+) or 3.354 ($100K+)
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Anon123
Anon123   |     |   Comment #6
It's a hard pull on Equifax.
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ucla
ucla   |     |   Comment #16
is there any plans for FDIC OR NCUA
raising insurance on IRA deposits
to greater than $250 k ?
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1
Luvcd
Luvcd   |     |   Comment #21
When is the next "downturn"? Then, for sure!
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deplorable 1
deplorable 1   |     |   Comment #22
Customers bank has upped the rate for their online Ascent MMA to 2.25% APY with no maximum balance and a rate guarantee thru 6/30/2019. It requires a $25,000 deposit to earn interest. This may be a good option for those who need more than the $250,000 with Northern bank or don't like the $100,000 cap at Northfield.
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deplorable 1
deplorable 1   |     |   Comment #30
Well the jobs numbers are in and the media is calling it a miss. Nonfarm payrolls increased by 157,000 jobs last month and 195,000 were expected. The unemployment rate dropped from 4% to 3.9%. Average hourly earnings rose by 0.3% vs. 0.1% in June. Now first of all these numbers get revised and many times they are revised higher. I don't know why this is considered a miss because I think these are very good numbers for a economy already running at full speed with unemployment already at 3.9%. I wouldn't be expecting huge job gains with the unemployment rate already this low. This should not be a hindrance to the FED for continuing with 2 more rate hikes this year. As of Friday the yield spread between the 2 and 10 year treasuries is .32.
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larry
larry   |     |   Comment #31
Yes, that is my thinking also, two more hikes this year. Chase head honcho Dimon said this am that 5% rates are coming soon. He sees what we have been saying which from a investors prospective keep it short and sweet for higher long term rates in the sweet spot.
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deplorable 1
deplorable 1   |     |   Comment #32
I tend to agree. Maybe Dimon knows something about the inflation outlook that we don't know. I had a hard time convincing myself to lock up for 18 months @ 3.15%. Next year should be very interesting.
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Newbie1
Newbie1   |     |   Comment #33
Question is, how long is short? 9 months, 12 months or 18 months... 24 seems too long in this environment.
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Bogie
Bogie   |     |   Comment #35
Newbie 1, your guess is as good as anyone else's. Even professional financial planners get it wrong.
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deplorable 1
deplorable 1   |     |   Comment #36
I would say 18 months or less but it also depends on the rate. The higher the rate the longer you can stretch. Say someone offered a 2 year 4% CD I would jump on it.
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Pie Tin
Pie Tin   |     |   Comment #37
Whoa seriously?

Thanks!!
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The Fed moved as expected by raising the federal funds rate by 25 basis points. This is the second Fed rate hike of 2018 and the seventh rate hike since the Fed started to raise rates in December 2015. Here’s that all important paragraph in today’s FOMC statement:

Just like in March, today’s decision was unanimous with all FOMC participants voting in favor of the rate hike.

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