CD Rates Will Continue to Move Higher in the Coming Months

In case you haven't noticed CD rates already started moving higher this past year and will continue to do so in 2017. The rate changes in 2016 have been minimal but at least CD rates are moving higher. At the beginning of 2016 the highest CD rates on 1 year certificates of deposit were around 1.10 percent, now the highest 1 year rates are at 1.30 percent.

How much higher CD rates move this year and next will depend on when The Federal Open Market Committee hikes the federal funds rate. The FOMC has two more meetings scheduled for 2016 and any rate hikes will come after a meeting.

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The first meeting is just before the November Election and the last meeting of 2016 is in mid December. We won't anticipate the FOMC to hike the rate just before the election but probably will during the December meeting. If the FOMC does hike the rate we look for a 25 basis point hike.

A 0.25 percent rate hike will send the best 1 year CD rates higher and towards 1.50 percent. Not all banks will increase their rates but the bank's already offering the top rates probably will. These national online banks vie for the top spot on the rate lists and they will continue to want to be on the top.

Looking beyond 2016 the FOMC is expected to increase the fed funds rate two or three times in 2017. Of course a lot will depend on how strong economic growth is, how high the inflation rate is and how many jobs are created. The FOMC also looks at wage ilfation to help them determine whether or not a hike rates at any given time.

Two or three rate hikes in 2017 will put the fed funds rate between 1.25 percent and 1.50 percent. If these hikes do happen, we look for the best 1 year CD rates to move above 2.00 percent and possibly as high as 2.50 percent. The last time 1 year CD rates were that high was during the financial crisis almost a decade ago.


Author: Brian McKay
October 7th, 2016

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