Savings Rates Forecast for 2014 and 2015

Current savings account rates and money market rates are still near record lows as we head into the new year. 2013 ends another year of very low deposit rates. Interest rates have been low for over 5 years now, ever since the financial crisis and "Great Recession." The question we hear all the time is when we can expect deposit rates to move higher.

Before we get into forecasting savings rates and money market rates in 2014 and 2015, here's a quick check into where rates are right now.

Current Average Savings Rates and Money Market Rates

In this week's FDIC rate survey for the week ending January 6, 2014, the average savings account rate is at 0.06 percent. The average money market account is slightly higher but still a pathetic 0.09 percent. These low average rates have been with us for several years now and probably will remain with us for some time to come.

Think jumbo accounts are earning better rates? Don't count on it. The current average jumbo savings rate in the survey this week is also at 0.06 percent and the average jumbo money market rate is at 0.13 percent. If you have opened a savings account or looked at your bank statement over the past 5 years, these low interest rates don't come as a surprise.

Average rates are just averages, and there are many banks and credit unions offering savings rates and money market account rates well above the averages. Here is a list of the best rates this week in MonitorBankRates' database of rates:

Best Savings Rates and Money Market Rates

Savings Account Rates

• First Trade Union Bank 1.00%
• GE Capital Retail Bank Optimizer Plus 0.90%
• Barclays Bank 0.90%
• CIT Bank 0.90%
• The Palladian PrivateBank 0.90%
• Discover Bank 0.85%
• Colorado FSB 0.85%
• American Express 0.85%
• FNBO Direct 0.85%
• Ally Bank 0.85%

Money Market Account Rates

• Union Federal Savings Bank 0.90%
• Sallie Mae 0.90%
• EverBank 0.86%
• GE Capital Retail Bank Optimizer Plus 0.85%
• Ally Bank 0.85%
• ableBanking, a division of Northeast Bank 0.80%
• First Internet Bank of Indiana 0.80%

The highest savings rates and money market rates in our database are considerably higher than the FDIC average rates. The average and highest rates available for these types of deposit accounts hasn't changed much for the entire 2013 year.

Will rates increase in either 2014 and 2015?

Yes, rates will eventually move higher but the verdict is still out on when.

Savings Rates and Money Market Rates in 2014

For most of 2013, we believed savings rates and money market rates would increase in the summer of 2014, when the nation's unemployment rate fell through 6.5 percent and the federal fund rate was increased, now that's unlikely. Until recently, the Federal Open Market Committee (FOMC), which sets the federal funds rate that bank rates are tied to has readily stated they would keep the federal funds rate low until the unemployment rate falls below 6.5 percent.

In their most recent statement right after the Committee's December meeting, they said the 6.5 percent unemployment rate shouldn't be considered a threshold that would trigger an increase in the fed funds rate. This means an increase in CD rates, savings rates, and all deposit rates are unlikely in 2014.

There will be some banks increasing their interest rates in 2014 and other banks offering higher rates than existing rates but overall don't expect much. The  current highest savings rates and money market rates are around 1.00 percent. By the end of 2014, there will be a handful of banks offering rates as high as 1.25 to 1.35 percent.

Savings Rates and Money Market Rates in 2015

Now that 2014 looks to be another year of low deposit rates, 2015 is shaping up to be the year that we will finally see higher deposit rates. You already know deposit rates are tied to the federal funds rate and move higher and lower in tandem. The current federal funds rate has been in a targeted range of zero percent to one quarter percent since December 2008.

In December, the FOMC also released a forecast for interest rates, GDP growth, and inflation in the coming years. A majority of FOMC Members, 12 of 17 to be exact, have forecasted a need to increase the federal funds rate in 2015. If the increase does come in 2015, we can also expect higher deposit rates in 2015.

The current fed funds rate is so low and accommodating for growth the Fed will have to quickly increase the rate just to get to a neutral level. A neutral fed funds rate, which doesn't fuel or constrict growth, is higher than zero percent. This means the we could see a fed funds rate of around 3.00 percent or higher in 2015, which means savings rates and money market rates will move to that level. 1 year CD rates would also move to around 3.00 percent.

An increase for interest rates in 2014 is unlikely but highly likely in 2015. We recommend staying invested in either variable rate accounts or certificates of deposit of terms of 1 year or less. After suffering with low interest rates for so many years, don't inflict more pain on your returns by locking into a longer term account at this point.