A Flat CD Rate in 2014

CD rates have been flat for almost all of 2014. The federal funds rate has also stayed flat and near the lower possible ranges well below one percent. Current mainstream CD rates are in the 0.75 percent range for five year CD’s with no minimum. There have been some great benefits and frustrations in this economic scenario. Bank depositors have not enjoyed the fruits of this situation as returns on deposits in nearly every category have stayed flat including CD’s of various terms. Some banks have bucked the trend and offer substantially higher rates for CD’s; they offer rates of one and two percent for short-term deposits and between two and three and one-half percent for longer-term deposits.

Benefits of the Flat Interest Line

Thirty-year fixed mortgages in the upper three percent range can be a boon for housing and home sales across the country. Pockets in certain areas like Southern California have shown periods of robust growth. They have seen housing values and sales rise for new and existing homes. Inflation has not reared its head, and the Fed guidelines and targets for controlling costs have been within manageable ranges. Perhaps owed to falling oil prices, many price points have dropped or stayed flat during seasons when they usually would not such as the onset of winter cold and cyclic price pressures on natural gas and kerosene.

The 2015 Federal Funds Forecasts

Few experts believe the Fed will leave the rate unchanged, yet few can find a good reason it would not. The recovery is taking hold in the form of lower unemployment rates and modest acceleration in the GNP. However, low oil prices can account for increased spending elsewhere, and there is no magic formula for keeping oil prices at the current lows. The notions persist, that the Federal Reserve will change the federal funds rate in early 2015, and with it indirectly raise depositor returns and CD rates.

2015 CD Forecasts

A modest change in the federal funds rate would trickle through the banking system and create and incentive for banks to offer more to get more depositor cash. They would in effect pay more for money and would have to pay depositors more to attract greater amounts of cash. The question may be whether overall economic growth will help improve returns for CD depositors, and this is a more positive situation. The Federal Reserve Open Market Committee has revised its long-term growth estimates upward by about two-tenths of a percent, putting 2015 into greater than three percent growth. The positive long-term estimates for economic growth can influence long-term returns for CD’s in the four and five-year range. Banks have sufficient motivation to change the banking experience for customers. Digitization and mobile access is a strong beginning, however, bank products must also have a careful re-examination. One approach seeks a greater unity of customer needs and bank services, for example, new CD products that tie low-cost financing to long-term savings.

The Consumer Wears Many Hats

The lesson of the flat interest rates on deposits is perhaps more simple than experts and the public are willing to accept. As consumers, we gain benefit from the state of the economy in more than one way. As consumers of depressed oil prices we benefit, as depositors seeking higher banking interest payments on deposits we do not gain. The overall oil price situation has a positive trend as lower energy costs translate to stronger discretionary spending. The forecasts for flat interest rates in early 2015 seem about right. Growth-oriented banks can act and create new product links to minimum deposits and offer higher rates. Consumers are vigilant, watching carefully for signs of higher interest rates.