Fed rate hikes’ minimal impact on bank deposit rates
Where does it leave investors when Fed rate hikes are barely budging rates on bank deposits?
August 3, 2018 | 1 minute read
As expected, the Federal Reserve kept interest rates steady this week, but offered a notably upbeat assessment of the economy and signaled that another rate hike is likely at its September meeting.1
After holding rates near zero for seven years, the Fed has raised rates seven times since 2015 and looks increasingly likely to raise short-term interest rates at least once more in 2018.2 This week, Fed funds futures indicated a 100% chance of a rate increase in September and a 64% chance of an additional rate hike by year-end.3
However, the rise in the Fed funds target rate seen over the past two years has yet to translate to a substantive pickup in the rate investors can achieve on either their cash deposits or certificates of deposit.
At an average rate of 0.13% for money market accounts and 0.41% for the average 12-month CD, bank deposit rates have barely budged in recent years and, with inflation currently sitting above 2%, continue to depreciate in value.4
As the chart suggests, even further rises in short-term interest rates may not translate into a substantial pickup on deposit rates any time soon.