Federal Reserve Dooms Higher Interest Rates For Savers

For those of us who are waiting for the Federal Reserve to increase interest rates that banks have to pay to borrow money, our waiting has gotten much longer, at least two years longer. Since the Fed’s rate-setting committee decided to hold interest rates at the current record lows until ‘at least through mid-2013’, we cannot see interest rates increasing on any investment vehicle such as Certificates of Deposits, Savings Accounts or any other investment that relies on the interest banks pay.

What does this mean for savers?

Banks will continue to borrow money at near zero percent interest and basically will have an endless supply of cash from the Fed. Why would a bank pay a higher interest to its savers/investors if it can get the same amount of money from the Fed at 0%-0.25% interest? Since these interest rates will be held at or near zero percent until at least mid-2013, savers get the short end of the stick!

What does this mean for mortgage rates?

The only good news about interest rates staying at record lows goes to those of us buying houses, cars or other items that require a loan of some type. The whole idea of keeping interest rates low is to encourage people to buy bigger houses and cars, and to encourage businesses to hire and expand their businesses. Neither of these scenarios has been working. The real estate market continues to struggle, more and more people are losing their homes to foreclosure and less people are able to qualify for a refinance on their current home mortgage, thus missing out on these record low mortgage rates.

The thought of keeping interest rates at record lows was to help the struggling economy, to help business create more jobs, to help the failing housing market, to increase consumer spending and to boost manufacturing outputs, but none have seen a boost or an increase in productivity. So why does the Fed keep doing the same thing by keeping record low interest rates until mid-2013? Not only does this do anything for the struggling economy but also hurts savers and investors alike. CD rates will continue to stay at or near record lows and mortgage rates will look to stay around record lows until inflation hits. We can see that both CD rates and Mortgage rates sticking around these low rates for a long time to come, unless if the US economy picks up, inflation hits or the Fed decides to change course.


Best CD Rates For October 18 2010

Long term interest rates are getting ready to drop again if the Fed has its way with buying billions of dollars worth of Treasury bonds. The buying of bonds will allow interest rates to continue their downward spiral in an attempt to stimulate the economy. By lowering long term interest rates it would stimulate buying and spending and help to reduce unemployment. The Fed wants to boost the inflation rate because of falling prices and wages which is being viewed as a more dangerous threat to the economy.

The meeting is set for November 2-3, 2010.

There have been no other changes to the best available CD rates since our last update.

The best 12 month CD rate still goes to Melrose Credit Union at 1.51% APY.

*TermBankOctober 18Last Week
3 Month CDNexity Bank0.86%0.86% APY
6 Month CDAurora Bank1.15% APY1.15% APY
12 Month CDMelrose Credit Union1.51% APY1.51% APY
24 Month CDBank of Internet1.79% APY1.79% APY
36 Month CDMelrose Credit Union2.27% APY2.27% APY
60 Month CDMelrose Credit Union3.03% APY3.03% APY