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fed talks about raising short term 1% by spring.
Old 10-08-2014, 06:47 AM   #1
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fed talks about raising short term 1% by spring.

I was listening to the fed folks wanting to raise short term rates to 1% by next spring. does anyone know how that would affect the rates banks and credit unions are paying on cd's? I am looking for best guesses, not that anyone has a crystal ball.
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Old 10-08-2014, 08:00 AM   #2
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Well, short term CDs will probably stabilize, might even increase by 0.5%.

Inflation may go up (further) though, in that case add in the extra inflation, also for longer term CDs.
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Old 10-08-2014, 08:55 AM   #3
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how about 5 yr cd's
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Old 10-08-2014, 09:50 AM   #4
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If the Fed raises rates, I would guess that CD rates would rise too.

More importantly, HELOC, ARM and new mortgage loans would raise, as would the amount the Federal Government has to pay on their loans/bonds. That may have a dramatic effect on the economy.
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Old 10-08-2014, 02:13 PM   #5
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I noticed yesterday that the regular CD rates at Penfed have climbed over 2% again for the 5 and 7-year terms:

https://www.penfed.org/Certificates_Overview/#tabs-2
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Old 10-08-2014, 02:33 PM   #6
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Well, short term CDs will probably stabilize, might even increase by 0.5%.

Inflation may go up (further) though, in that case add in the extra inflation, also for longer term CDs.
Why will raising rates stimulate increase in inflation?
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Old 10-08-2014, 06:53 PM   #7
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Looks like they will hold off on that now. Europe is not doing well so it might get delayed longer they said tonight on the news.
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Old 10-09-2014, 07:26 AM   #8
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Why will raising rates stimulate increase in inflation?
Raising rates actually dampen inflation, but one of the reasons the Fed raises rates is because they think inflation may finally be picking up (in tandem with lower unemployment and economic growth).

So it's inflation trending upwards => Fed raises rate.
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Old 10-09-2014, 07:36 AM   #9
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Raising rates actually dampen inflation, but one of the reasons the Fed raises rates is because they think inflation may finally be picking up (in tandem with lower unemployment and economic growth).

So it's inflation trending upwards => Fed raises rate.
Yes so they will be basically pushing inflation down and raising things like CD rates which will leave people with some money in their hand AFTER two things: inflation and taxes on CD payout.

Right now people ale loosing money in CDs.
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Old 10-09-2014, 08:03 AM   #10
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I haven't been loosing money on cd's but have just barely kept up with inflation. My theory is that so many people are getting into equities is they have no where else to go. I have some money in savings at 1%, and have seen cd's lately at 2.56% for five year. I would like to see them get over 3. before I go with a 5 year. 3% isn't great but with the way the government is playing with interest rates does anyone see it going over that in the next 5 years?
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Old 10-09-2014, 08:13 AM   #11
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I haven't been loosing money on cd's but have just barely kept up with inflation. My theory is that so many people are getting into equities is they have no where else to go. I have some money in savings at 1%, and have seen cd's lately at 2.56% for five year. I would like to see them get over 3. before I go with a 5 year. 3% isn't great but with the way the government is playing with interest rates does anyone see it going over that in the next 5 years?
Well inflation is about 1.6%-1.8%. Lets say one is in 15% tax bracket. So I would need at least 2.1% to keep up with inflation. (that is if you are on low tax bracket)

If 1 year CD pays 2.1% plus you are right. (It pay more like 1.1 so will loose 1% of my money)

Now you can tell me 5 year CD pays that. But that is risky. Can you guaranteed inflation of 1.6-18% for NEXT 5 years. I don't think so.
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Old 10-09-2014, 10:28 AM   #12
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I have matured CD money at PenFed. I didn't buy a new CD because I was waiting to see if they would offer an after Christmas present on rates. However, I have recently received ads from them about 1yr, 1.2%APY. Is it hard to cancel and take the penalty if, say, they offer 3yr, 3%APY soon after the purchase?
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Old 10-09-2014, 11:06 AM   #13
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CD rates over the next 5 years? Get out your crystal ball. All I know is that rates are very low and the big risk is that they will spike (further declines are limited by their very nature). As a result, I am leaving my 30 year fixed mortgage outstanding and when I buy CDs I will go as far out in maturity as I can so long as the early surrender penalty is not more than 1 or 2% of the D (typically like to see only a 6 month surrender penalty). That way I have a lot of optionality in my favor when it comes to interest rates. If rates spike, I cash in my CDs and buy new ones. If rates drop, I refinance my mortgage.

It is very easy to surrender a CD at Pen Fed and buy a new one if they have a sale. It may require a phone call to them, but they are nice about it.
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