Fed Holds Rates Steady - CD Rate Predictions & Strategies for 2019
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. The FOMC statement had nothing to suggest any change to their gradual rate hike policy which means that a December rate hike is very likely.
The economic overview in today’s FOMC statement was very similar to the September statement. There were only two changes. The description of the unemployment rate went from “stayed low” to “declined”. The other change was the “growth of business fixed investment” which went from “grown strongly” to “moderated from its rapid pace earlier in the year”. In summary, the FOMC statement had nothing to suggest any future changes to its current policy of gradual rate hikes.
Another thing to note about today’s FOMC statement was that there was no mention of the volatility in the financial markets that has occurred since the last FOMC meeting. This suggests the volatility is not enough to warrant concern in their decision making.
All voting members voted for today’s policy decision. There were no dissents.
December Fed Rate Hike Odds at 77.8%
The odds of a December Fed rate hike isn’t quite a sure thing according to the Fed fund futures as shown by the CME Group FedWatch Tool. The odds of a rate hike in December is now 77.8%. This combines a 71.4% chance of a 25-bps rate hike and a 6.4% chance of a 50-bps rate hike. On Tuesday, the odds were 79.3%. After the August Fed meeting, the odds for a September rate hike were 91.2%.
The odds that the Fed rate will be at least 50 bps higher in March (most likely a 25-bps rate hike in December and March) went up a little from Tuesday, rising from 57.2% to 60.4%.
Future FOMC Meetings
The next three FOMC meetings are scheduled for December 18-19, January 29-30, and March 19-20. The December and March meetings will include the summary of economic projections. All future meetings will have a press conference by the 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. As long as rates keep rising, long-term CDs don’t look attractive. That’s especially the case when long-term rates aren’t that much higher than short-term rates.
Today’s Top Deposit Rates and Comparison to August
The decision between long vs. short hasn’t been easy due to long-term CD rates that have been increasing. We now have a few 4-year and 5-year CDs at or above 4.00% APY. These CDs are from credit unions. A few credit unions have been offering higher rates on 5-year CDs than the internet banks. Currently, the highest 5-year CD rate that’s nationally available from a bank is 3.50% APY. The highest from the large and well-established internet banks is 3.10% APY.
Short-term CD rates have also been increasing. We now have a nationally-available 1-year CD at 3.00% APY. A few credit unions have also been offering higher rates on 1-year CDs than the internet banks. Currently, the highest 1-year CD rate that’s nationally available from a bank is 2.75% APY. The highest from the large and well-established internet banks is 2.68% APY.
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 August 1st (the last Fed meeting with no rate hike):
- Top Savings/Money Market Account Rate:
- 2.30% APY, Northpointe Bank, Ultimate Money Market, $25k to $1m (old rate in Aug: 2.25% APY, Northfield Bank, Online Platinum Savings - New Money, up to $100k)
- Top 1-Year CD (term equal to or close to one year):
- 3.00% APY, Greenwood Credit Union, 12-month CD, $1k minimum (old rate in Aug: 2.60% APY, CD Bank, 12-month CD, $10k minimum)
- Top 5-year CD (term equal to or close to five years):
- 4.08% APY, Garden Savings Federal Credit Union, 4-year CD, $500 minimum (old rate in Aug: 3.53% APY, United States Senate Federal Credit Union, 5-year CD, $60k minimum)
Just like in August, the top 5-year CD rate had the largest increase (rising 55 bps vs. 40 bps for 1-year CDs). On the other hand, the top rates for savings and money market accounts only increased 5 bps. It should be noted that a promotional savings account rate of 2.50% APY was just discontinued at EBSB Direct. But even if the 2.50% APY were used as today’s top rate, the top savings and money market rate has only increased 25 bps from three months ago.
Future Deposit Rate Predictions
So based on the recent rate histories of the top CDs and savings accounts, we may see top CD rates that are around 50 bps higher three months from now. And top savings account rates should be around 25 bps higher three months from now. That would result in a top 5-year CD APY at around 4.50% and a top 1-year CD APY at around 3.50%. The top savings or money market account APY may be around 2.75%.
CD and Savings Account Strategies In This Rising Rate Environment
With CD rates rising this fast, it seems prudent to avoid long-term CDs until we see at least two or three straight Fed meetings with no rate hikes.
CDs with 1-year terms can make more sense, but you probably won’t earn significantly more interest in these than in savings accounts over a full year. You’ll start off earning more in the first half of the term, but during the second half, savings account rates will likely be earning more than the CD. If you average out the interest earned in the savings account, it will likely be similar to the 1-year CD.
An example of comparing a savings account with a 1-year CD over a year in today’s interest rate environment can be seen by using Ally Bank. One year ago, the Ally Online Savings Account had a 1.25% APY. Today, it has a 1.90% APY. A rough average of the yield in the last year is 1.58%. A year ago, the top-tier rate of the Ally 12-month High Yield CD was 1.65%. As you can see, you would have earned just a little bit less in the savings account.
The one obvious downside with most CDs is the early withdrawal penalty. If you come across a hot CD deal and you want to fund it with an existing CD, you’ll be hit with an early withdrawal penalty.
Another downside with a CD is that it makes it more difficult to quickly deploy the funds when hot CD deals arise. If you need the funds for a hot CD, you’ll need to close the existing CD and transfer the funds to a savings or checking account that can be used to fund the new hot CD. Some banks like Ally can quickly close CDs and transfer the funds to an internal checking or savings account where the funds can be immediately available. That’s not always the case with some institutions.
Of course if you want to keep things simple with your safe money, a CD ladder is always a reasonable option. The ladder ensures you take advantage of higher rates as interest rates rise. You may want to favor shorter-term CDs for your ladder. However, beware of short-term CDs with terms under one year. At many internet banks, rates of CDs with terms of under one year continue to be well below savings account rates. These short-term CDs don’t make any sense. If you’re starting a CD ladder, don’t choose short-term CDs with rates under savings account rates.
nobody else EXCEPT for mr larry accepted rates to RISE this year!
It was not a popular product , I was told, because people were worried rates would go down.
I'm not sure whoever designed this offering was doing so with a full deck. They allowed unlimited add -ons.
The current rate is 3.74 with 4.25 years remaining. If short rates go to 3.375 by Dec 2019 as the dot plot indicates, the 1 year will likely be above the short rate...say 3.60-3.80 , which along with the 105 bps yields around 4.70 on what would then be a 3 year CD. As the maturity approaches, there's an opportunity to dump a lot of money into the CD at any time and earn 1 yr T +1.05 even with only 1-2 years or less remaining.
I'd avoid investing too early and only buy CD's you can "put" with a 6 month penalty.
Remember, unlike a brokered CD or a bond, the early withdrawal penalty is a deduction "above the line" on your tax return, so the effect is mitigated by your marginal tax rate.
Being able to "put" a CD at 98 cents on the dollar is something I'd be more than willing to do since , with AGI over 157,500 (single filer)your marginal rate is 32%, and if over $200k your marginal rate is 38.8%.(35 +3.8 net investment income tax).
In my opinion everyone's goal should be to earn taxable interest up to the threshold where the tax rate skips from 24.5 to 32. Above that , AA and AAA tax free bonds make a lot of sense . Above 200k in income (once again single) , buying 20 year AA housing bonds yields a tax free rate of 4.1-4.2, with a taxable equivalent close to 7 depending on your state tax.
As I sidetracked to low income housing bonds , I might as well mention these are extremely likely to last the full 20 years, as the tax code only allows housing authorities to recycle the money from payoffs and principal payments for 10 years.
Well, they buy treasuries and the money paid back to the bank(s) as interest is given to us after a 1/4 to 1/2% cut for the bank(s).
Now, the treasury used our money to pay the obligations, but always they are short and continue to borrow money from the FED. When ever we ask for the money back from the bank(s), they cash in the treasury notes and the treasury being always broke, asks for more money from the FED because our original money was long gone.
The vicious circle continue endlessly or until the treasury can no longer pay the interest on the national debt, present estimate $23 trillions and the present interest payment is about $550 billions per year and climbing.
Every one percent rise in the interest rates cost us (the taxpayer) $130 billions extra per year, what do you think will happen with the dollar and our savings in few years time?
The ONLY SOLUTION to our DEBT is a constitional amendment!
If the constition REQUIRED a balanced budget the past two years, it would have happened!
But now that TRUMP and his cronies have gotten their tax cuts, they should support an AMENDMENT!
By the way Trump's did cut the taxes for everybody and we should thank him. If you know what the dems stands for about the debt ceiling and balanced budget, you will not demand amendments, it will not be allowed by the dems.
Now that taxes have been CUT we can now cut SPENDING such as Socail Security and Medicare.
Thini about it. Less social security = less people = less Medicare!
The term is "golden circle."
Look at what people have voluntarily saved for their retirements.
Pretty much squat.
That was the whole point of Social Security.
To force people to have at least a base retirement amount.
With IRA's there's nothing stopping people from creating their own private account.
I guess you're against having a military.
That's the biggest and most wasteful government program that's ever existed.
How on earth are you going to make that deal with the dems?
He was the last president to balance the budget.
I have to agree with...
No, I can't say it!
The FED is not our friend, they have different agenda.
According to you, the Fed should keep rates low since congress is dysfunctional, risk skyrocketing inflation which is in their mandate, this way when SHTF then we can all blame the Fed, are you related to Chuck Norris?
Beginning with the 1998 budget year, during Bill Clinton’s second term, the federal government actually ran a yearly budget surplus through FY 2001.
This surplus was eliminated by tax cuts initiated by his successor, George W. Bush.
An article from 1998.
https://www.cato.org/publications/commentary/no-bill-clinton-didnt-balance-budget
What came about soon after are the dot-com bust, 9/11, and subprime crisis. Bye Bye balanced budget.
China now is a competitor on any field and that how we started to import cheap junk from China and created $500 billions in deficits per year, just from China alone.
#77 - I did not try to figure out all of campaign contributions going on in the presidential elections in the 1990s. But, that is irrelevant regarding the discussion about the balanced budget topic.
Are you going to stop giving 5% CDs. Please increase rates.
https://www.washingtonpost.com/business/2018/11/05/trump-wants-copy-venezuelas-biggest-economic-mistake/
If MSM has done a permanent damage to you, it is a different story, but we like your inputs anyway.
https://nypost.com/2018/11/09/james-comey-discussed-sensitive-fbi-business-on-his-private-email/
At the moment I'm in EU, but visit DA regularly, some of those posts are right on the money (spot) and you should be proud to have such bright and intelligent posters. I learn a lot about the money flow, the FED, treasury, government and so on, just by reading some fantastic posts. Here in Holland, Italy and other EU nations, we follow and love what Trump is doing, you should be lucky to have such person in power, God bless you all.
The globalists are in panic mode in EU and they try everything to play down the Trump effect. He is loved in EU on a scale about 50%-60% of the population. Because of Trump effect here in Germany, Angela Merkel is being sent out of politics and the nationalist parties are being re-elected in big numbers and that is a fact.
The euro is pegged to the dollar and can only go up or down 10- 20 cents before it resets back again to around $1,16. The central bank in EU, Mario Draghi said that the euro is here to stay no matter what happens to the interest rates or the value of it globally.
Can we save ourselves from sinking and how?
https://www.wsj.com/articles/u-s-on-a-course-to-spend-more-on-debt-than-defense-1541937600
LCDR Bozo
You should do something to solve that problem first.
Even your post may soon be
Thanx so much!
do now have a funding account to move money?
11 month no withdrawal penalty at ally may be a good start.
Future Deposit Rate Predictions
So based on the recent rate histories of the top CDs and savings accounts, we may see top CD rates that are around 50 bps higher three months from now. And top savings account rates should be around 25 bps higher three months from now. That would result in a top 5-year CD APY at around 4.50% and a top 1-year CD APY at around 3.50%. The top savings or money market account APY may be around 2.75%.
CD and Savings Account Strategies In This Rising Rate Environment
With CD rates rising this fast, it seems prudent to avoid long-term CDs until we see at least two or three straight Fed meetings with no rate hikes.
CDs with 1-year terms can make more sense, but you probably won’t earn significantly more interest in these than in savings accounts over a full year. You’ll start off earning more in the first half of the term, but during the second half, savings account rates will likely be earning more than the CD. If you average out the interest earned in the savings account, it will likely be similar to the 1-year CD.
An example of comparing a savings account with a 1-year CD over a year in today’s interest rate environment can be seen by using Ally Bank. One year ago, the Ally Online Savings Account had a 1.25% APY. Today, it has a 1.90% APY. A rough average of the yield in the last year is 1.58%. A year ago, the top-tier rate of the Ally 12-month High Yield CD was 1.65%. As you can see, you would have earned just a little bit less in the savings account.
The one obvious downside with most CDs is the early withdrawal penalty. If you come across a hot CD deal and you want to fund it with an existing CD, you’ll be hit with an early withdrawal penalty.
Another downside with a CD is that it makes it more difficult to quickly deploy the funds when hot CD deals arise. If you need the funds for a hot CD, you’ll need to close the existing CD and transfer the funds to a savings or checking account that can be used to fund the new hot CD. Some banks like Ally can quickly close CDs and transfer the funds to an internal checking or savings account where the funds can be immediately available. That’s not always the case with some institutions.
Of course if you want to keep things simple with your safe money, a CD ladder is always a reasonable option. The ladder ensures you take advantage of higher rates as interest rates rise. You may want to favor shorter-term CDs for your ladder. However, beware of short-term CDs with terms under one year. At many internet banks, rates of CDs with terms of under one year continue to be well below savings account rates. These short-term CDs don’t make any sense. If you’re starting a CD ladder, don’t choose short-term CDs with rates under savings account rates.
I read your summary in the comment. I see that three months from now, rates may go up to a top APY of 3.5% for a 1-year CD. So would you recommend I wait to get that (I know, it's a gamble), or go with the 2.6% that's listed for now? I also may wait another week to see if it goes up after the December meeting.
RJM, how is 2.25% no penalty better than a 2.6% one-year CD? I admit, I don't totally understand how the yields work.
at 100k the difference is $350 in a years time
a 11 mo No Withdrawal Penalty CD gives you
better income than you have and opportunity to find the best rate
if Dec rate increase comes from fed