Bank Rates Lower with Market Uncertainty

The last couple of weeks have been tumultuous times in the stock and interest rate markets. The debt crisis in Greece has created havoc in the markets resulting in wild swings in the stock market and a flood of funds into the safe harbor of the Treasury market driving bank rates and CD interest rates lower.

Expectations have been for rising CD interest rates this year but the exact opposite has occurred. As Treasury rates rose through March and the first week of April, the expectations for rising bank rates and CD interest rates became more wide spread only to see bank rates and Treasury rates move measurably lower.

Wednesday’s close on the ten year Treasury was 3.36%. The ten year Treasury high yield for the year was 4.01% which was the closing rate on April 5th while the low yield for the year was yesterday’s 3.36%. A 65 basis point or 65/100 of a percent change in less than two months.

Lower Treasury rates generally lead to lower bank rates overall. CD interest rates are already at low levels and have fallen just modestly in the past four weeks. Mortgage rates have really felt the impact of lower interest rates and are now at their lowest levels of the year based on the weekly survey of mortgage rates performed by Findlocalmortgagerates.com.

CD rates may very well continue to fall as banks have more than adequate reserves available to make new loans and thus do not need to keep aggressively attracting depositors funds. The large U.S. banks are certainly not going to raise their CD rates in this environment of questionable economic activity and low Treasury rates.

This is the time to keep a close eye on how market rates respond to the changing economy, when Treasury rates start to move higher or even lower yet, bank rates and CD rates will follow, albeit with some delay.

Bank rates and CD rates should eventually move higher and rise as the economy recovers. However, it’s the recovering economy that is the biggest issue which becomes increasingly conflicted with the troubles in Europe. The US economy is certainly expanding but at restrained pace. The turmoil in Greece is likely to cause a slow down in the European economies as well as the Chinese economy which has more trade with Europe than the U.S. There is now much less certainty over future spending and investment and demand for capital, and this will continue to keep a lid on bank rates.

Desirable CD rates are still available in this market. Some of the best national CD rates are leading local and regional bank CD rates for many markets; however there are still some regional and local bank CD rates that are well above the best national CD rates.

Compare the best CD rates overall with the best state CD rates to find the highest rate of return before committing finds to a bank that is not paying the most favorable interest rates available.

Tags: bank CD rates, bank rates, Banks, best CD rates, CD interest rates, interest rates, treasury rates

This entry was posted on Thursday, May 20th, 2010 at 5:51 pm and is filed under Money Rates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.