How a Hike in Interest Rates Could Affect Your CD Savings
In spite of the expectations of many, the Federal Reserve announced on the 17th of the month, that there will be no price hike in the interest rates for now. The benchmark set federal funds rate will stay the same at present. Yet, there have been speculations by the federal banking regulator, that there will still be an expected hike in the rates, raising them for the first time in 10 years.
The Open Market Committee of the Fed is responsible for setting and adjusting the rate, which the banks charge to other banking institutions for certain overnight loans. This has an influence on the supply of money, keeps the economy stable and helps control inflation.
Ever since the December of 2008, the rate has been calculated to lie in the range of 0% to 0.25%. This was because the committee cut the rate to pull the economy out of a major crisis that was triggered by the housing crash in the segment.
Besides different economic impacts, a change in the interest rate affects the consumers directly in different ways. It is important for consumers to know that they should not expect a rate change to modify their overall finances within one night. It is bound to take some time before the change in the rate will have any influence on the financial products available in the market.
One major impact of the rate change is on the certificates of deposit and the bank’s saving accounts. The CD rates have been at an all time low since 2008, with the national average reaching to just 0.06%, as shared by the FDIC. With the increase in Fed rates, the savers expect higher yields from the accounts. According to the US Census, the savings account rates had an average of 3% in 2007.
It is not easy to predict what one can expect to earn, since it all depends on a variety of factors which include, the type of account along with the details of how fast the bank can pass on the benefits of the high rates to the account holders.
Megan Greene, who is the chief economist at the Manulife Asset Management, said that market has anticipated a rise in the interest rate for some time now. It is expected that the Fed will approve a rate hike only if the data available warrants such a decision, and would only do so, slowly, so as to avoid any major impacts on the stocks.
