Where will CD interest Rates Go in 2016?

Reviewed: March 14, 2016
By FinanceWeb

The economy will play a big role in determining whether the federal reserve continues its current policy on interest rates. The latest jobs report was positive in the range of 225,000 new private sector jobs. The Federal Reserve has cautioned that its current policies depend on continues overall progress in economic growth and jobs. Assuming that the economy continues to add jobs at a modest rate or better, the forecast for cd interest rates 2016 is to increase over the course of the year.

Modest Growth Predicted

While most bank and Thrift experts expect an increase, the range is fairly widespread. The overall consensus is that it will be modest. An approximate average of the expert predictions is that short-term, three-year, and five-year notes will rise by about 25 percent or more. In average yields, that would indicate an increase from about 1.5 percent to 2.2 percent on five-year notes and from about one-half percent to about 1 percent on three-year cd interest rates 2016.

Growth Can Vary

The major economic factors that control global growth include energy prices, and the global oil situation is at the heart of energy pricing. There are signs of a gradual reduction in the world over-supply; however, one must quickly caution that production discipline among needy producers is not a certainty. One should expect producers to continue to improve their situation but slowly and with the possibility of starts and stops.

World Events Add Uncertainty

Hostilities continue in large areas of the Middle East and in Eastern Europe. A new round of international sanctions will affect North Korea. There is a potential for a major escalation in Syria and Libya. These events and potential situations create uncertainty and markets around the globe will react to them in ways that are not predictable. There may be significant impacts on the US economy from an escalation of hostilities.

The BRICs and Growth

Brazil, Russia, China and India still hold keys to international economic growth. China, in particular, reflects difficulties and change. It is interesting to note the environmental issues in China and India where air pollution in major metropolitan areas have become a commercial problems and health issues. As Rio de Janeiro prepares for the Olympics, it still wrestles with unresolved water pollution issues. There may be an added dimension of growth among these powerful economies as they address environmental concerns with increased effort and spending.

Overall Bank Needs

The key for higher interest rates rests with the banking sector’s cash position. At the current rates of US economic activity, most large banks seem to be in solid positions with no dramatic need to offer higher rates to attract capital. Should the US economy begin to heat-up, such as in response to military situations or in new stimulus, the situation could change dramatically for the big banks.

Real Estate Could Be a Key

In the news recently, Canadian real estate showed tremendous growth in the coastal markets of Toronto and Vancouver. Price and volume have grown; anecdotal evidence suggests that foreign investment plays a role. The US could experience a similar situation to the extent that foreign investors see long-term benefits in North American real estate.

Small and Regional Banks CD Rates

2016 will offer a greater possibility that smaller banks will reach out to investors by offering higher rates. This cycle could benefit savers and investors if it becomes competitive. When small and regional banks compete for deposits, they tend to add points and premiums to attract savers. Further, the window of opportunity for ambitious smaller banks is a small one. They can compete with each other more easily than with the large banks. To grow, small and regional banks would be wise to move while the larger banks are not in play and take advantage of a smaller field of competitors.