Are CD Rates heading Higher Along With a Higher Discount Rate?

are-cd-rates-heading-higher-along-with-a-higher-discount-rateThe Federal Reserve Bank raised the discount rate from 1/2 percent to 3/4 percent as part of the Fed's action to noralize the the Fed's lending facilities.  The Fed's discount rate is the rate banks pay for emergency loans. 

The discount rate was raised as part of the Fed's action pull bank on the liquidity it provided the system to help us through the financial crisis and stop us from heading into a depression.

Unfortunately, a higher discount rate doesn’t mean deposit rates like CD rates and savings rates will go higher. On a positive not this also means bank rates for loans like mortgage rates won't head higher either.

The Fed said the step taking shouldn’t be seen as a signal that it will soon boost interest rates for consumers and businesses.  The Fed also reiterated their statement in January's FOMC meeting about keeping the Fed funds rate in the targeted range of zero percent to one quarter percent for an extended period of time.

Author: Lisa Graham
February 20th, 2010

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