Chance for Higher Deposit Rates in September Increases

The likelihood of savings rates and money market rates moving higher has increased as a result of some recent Fed comments. The Fed Chairperson, Janet Yellen, and the NY Fed President, William Dudley, both made comments this week that a fed fund rate hike is possible soon.

In a speech on Friday, Yellen said a rate hike this year is still on the table. "I believe the case for an increase in the federal funds rate has strengthened in recent months."

William Dudley also commented on Friday suggesting a rate hike is possible as soon as the Fed's September meeting. He said the Fed is "edging closer towards the point in time where it will be appropriate I think to raise interest rates further." 

Strong economic news is the key to a rate hike in September or the two remaining meetings scheduled in 2016. A really strong employment report for August will be the catalyst for a fed funds rate hike in September. It's unlikely the Fed will increase rates during the November meeting, which is less then a week before the fall election.

If we don't see a rate hike in September, the last chance for a hike in 2016 will be the during the December meeting. A hike in September or December will only be 25 basis points and would put the fed funds rate at 0.75 percent. It's highly unlikely the Fed will hike in both September and December.

The fed funds rate at 0.75 percent might entice banks to increase deposit rates. It is doubtful we will see any banks or credit unions increasing their rates by 25 basis points. A more likely increase will be only around 5 to 10 basis points, which would put the best savings rates or money market rates around 1.25 percent.

In the meantime, the current highest savings rates in our database are at 1.05 percent and the highest money market rates are at 1.11 percent. Right now you can get a slightly higher rate on a 1 year certificate of deposit. The best 1 year CD rates in our database are at 1.30 percent.

Author: Brian McKay
August 30th, 2016

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