Deposit rates on savings accounts and certificates of deposit (CDs) continued their downward trajectory throughout 2013. With an improving jobs market and the Fed’s increasingly optimistic economic outlook, rates recovered slightly toward the end of the year, but they still ended lower than the year prior.

liz west / Flickr |

liz west / Flickr source

The national savings rate average started off at 0.34% APY and ended at 0.28% APY. However, some banks slashed rates more than others. TIAA Direct began the year with a savings rate of 1.25% APY, and it now stands at 0.40% APY. The bigger players did not make these major rate cuts. For example, Ally Bank’s savings rate only fell from 0.95% APY to 0.85% APY.

Meanwhile, the movement of CD rates varied depending on the terms. Shorter-term CDs, of 12 months and under, fell gradually. CDs with terms of 24 months and greater slipped for most of the year, but began to rise in last quarter of 2013. For instance, the national 5-year CD rate average started 2013 at 1.21% APY and fell to as low as 1.08% APY, but ended the year at 1.12% APY.

The shift in CD rate trends coincided with speculation that the Federal Reserve will begin to relieve pressure on interest rates by tapering its bond-buying program (which it eventually announced in mid-December).

See the annual rate change in the table below:

CD TermAPY (as of 12/31/12)APY (as of 12/31/13)APY Change

Rate expectations for 2014

Although the Federal Reserve provided good reason to believe that deposit rates will rise in 2014, the monetary-policy discussion alludes to a year without noticeable rate increases.

The central bank previously said that it would boost the federal funds rate when the unemployment rate fell to 6.5 percent. We’re approaching that level extremely fast — likely to occur in mid-2014 — but the Fed still believes that it would have to wait until 2015 to increase rates.

If the Fed tapering increases during the next year, we can expect slight bumps in deposit rates. Otherwise, deposit rates are likely to stay relatively flat.


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