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Since April, the top rates haven’t changed too much. However, we have seen drops of 15 Basis points (0.15%) or more for institutions in the middle tier. For instance, Alliant’s rates went from a 1.00% to a 0.85% for the 1-year CD. So for investors that don’t have large CD holdings, you probably won’t see much change in the near future.
Next six months
The FOMC has originally indicated they don’t plan on moving short-term rates until at least of end of 2014. However, during their September 13, 2012 meeting they announced it would now be Mid-2015. In addition, they announced further buying of Mortgage Backed securities. This just gives the banks an excuse to slowly bring their CD rates closer to Fed Funds which is between 0.0% and 0.25%. I would expect 1-year rates to continue to fall and 1.00% rates may not last much longer.
The Next Couple of Years
This is where the crystal ball really gets fuzzy. I don’t really want to put my neck on the line and frankly there is no real way to tell; two years is an awfully long time. I do believe that history can help a little bit, but we are well past historical norms when it comes to interest rate fluctuations. That being said, when the Fed does start raising rates, they typically raise them much slower then they brought them down. I would think their first move may be to a 1.00%. Only because they have been so over accommodating so far. After that (sometime much later in 2015, if they keep to their promise), rates would probably rise 0.25% at a time. Rates may rise over the next year and then probably hold for a bit. By the end of 2015 we could see 1-year rates around 2.00%. That could push the 5-year to a 2.50% to 3.00%
Short-term or Long-term CDs
I still believe because of the spread between the 5-year and 1-year, that longer-term CDs (with reasonable penalties) are the way to go at the moment. As rate increases seem imminent it may make sense to shorten your term. Time (and rates will tell)