Direction of CD Rates in 2010

CD rates have been going down for about 18 months. The good news is bank CD rates will eventually go higher sometime in 2010. In fact, average CD rates were mostly higher this week over last, though we don't anticipate the trend higher will continue until the second half of 2010.

The Federal Reserve has kept the Fed funds rate in a targeted range of 0% to 1/4% since the financial meltdown. If the economy is humming along and hiring picks up, interest rates will start heading up later this year.




The Federal Reserve will probably start raisingthe Fed funds rate in third quarter of 2010. A higher Fed funds rate will drive CD rates at banks and savings account rates higher. Unfortunately an increase in the Fed funds rate will also cause home mortgage loan rates to head higher as well.

Higher CD rates will be good news since rates have been so low for so long. There was an interesting article in Businessweek about how much money banks have made since CD rates have been low. Banks made about $56 billion since the Fed funds rate was lowered to 0%.

The average 12 month certificate of deposit rate has been around the 1.00% range for over a year now. The best CD rates available right now for a 12 month certificate of deposit is around 1.75%.

We expect CD rates to gradually head higher this year, 12 month CD rates will probably average 2.00%, some banks will probably go as high as 2.50% on a 12 month CD before the end of 2010.

The average 5 year CD rate isn't much higher than the average 12 month CD rate, right now the average 5 year CD rate is only 2.43%. You can find CD rates higher than the national average CD rate. PenFed, a credit union in California, is offering a 5 year CD yield of 3.50% right now.