Despite the government shutdown, the U.S. economy didn’t appear to take a major hit this month, and neither did certificate of deposit (CD) rates. The national averages for CD rates have posted an overall increase in the month of October. The improving jobs numbers and lingering speculation of the Federal Reserve’s impending plans to taper bond-buying are likely to be the driving factors for the rise in rates.In the past month, there were across-the-board CD rate hikes at Ally Bank and Discover Bank, two of the largest online banks in the U.S. However, other online banks are ramping up the competition for consumer deposits by offering extremely attractive long-term CD rates.
EverBank, GE Capital Bank, Barclays Bank and Nationwide Bank are currently offering 5-year CD rates that are at least 2.00% APY — every $10,000 earns $200 in interest annually. These rates are nearly twice the national 5-year CD rate average of 1.11% APY.
However, if the rise in CD rates is not a temporary fluke, it would be unwise for savers to invest in a long-term CD because the market rates would eventually surpass the CD rate to which they’ve already committed their money. A CD ladder is a good way to address the risk of rising interest rates without losing out on great CD rates available now.
In the latest Fed board meeting, no announcements were made regarding changes to the bond-buying program or interest rates. Speculation of a reduction in bond purchases combined with the decline in the unemployment rate may be reasons that banks are increasing CD rates. In September, the unemployment rate fell to 7.2 percent, which is not a long way off from the Fed’s target rate of 6.5 percent. At that point, the Fed plans to raise benchmark rates.
The table below shows the changes in the national averages for CD rates from Sept. 30, 2013 to Oct. 31, 2013. The figures are based on the data acquired from banks that are tracked by MyBankTracker.
|CD Term||APY (as of 9/30/13)||APY (as of 10/31/13)||APY Change|
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