How soon until CD rates reflect the Fed hike of May 4th?

[Cheesehead]

Hi,

I want to create a CD ladder for about 6 months out. How soon until the CD rates reflect the latest hike?

Thanks,

Nick

 

[GenXguy]

Some already do. I noticed Ally's rate went up from when I had just checked a day or two ago.

 

[ownyourfuture]

Can't comment on cd rates, but my Fidelity money market recently jumped from 0.01 all the way up to a staggering 0.05
I'm rich

 

[Dtail]

Can't comment on cd rates, but my Fidelity money market recently jumped from 0.01 all the way up to a staggering 0.05
I'm rich

And their premium money market rate jumped to 0.19, so I am richtoo.

 

[OldShooter]

CD rates are set by banks based on their needs for deposits. First try will be existing customers rolling over, next maybe the local market, then the national market. Each step the bank has to offer higher rates, so they step up reluctantly. There is no formula, no rules.

I had a friend who owned a bank. He told me to watch the local newspaper table of offered CD rates. When he needed money, they just offered a rate that put them at the top of the local table.

 

[npage]

Look to brokered CD's?

 

[audreyh1]

I’m seeing 16 month CD at 1.7% (synchrony bank) which is not bad.

But with 1 year T-bill Trading above 2% recently, still not as attractive.

 

[Al18]

CD rates started being raised a month ago.
Brokered CD rates at Fidelity today are:
1yr
2.05

18mo
2.30

2yr
2.95

3yr
3.10

4yr
3.15

5yr
3.35

 

[ShokWaveRider]

Remember, before committing to a long CD, there will be 3 more rate hikes at least this year, one as soon as next month. Traditionally/Historically to keep inflation in check, rates were set to be more or equal to inflation. I cannot see this happening this time, but there should be at least 1.5% increase before year end......... OK I am hoping, but I may not be far wrong.

 

[gauss]

CD rates are set by banks based on their needs for deposits. First try will be existing customers rolling over, next maybe the local market, then the national market. Each step the bank has to offer higher rates, so they step up reluctantly. There is no formula, no rules.

I had a friend who owned a bank. He told me to watch the local newspaper table of offered CD rates. When he needed money, they just offered a rate that put them at the top of the local table.

+1 The May 5 radio episode of Marketplace has a banker guest that shares a very similar explanation.

Here is the link and the banker portion starts around the halfway part.

-gauss

 

[Aerides]

Remember, before committing to a long CD, there will be 3 more rate hikes at least this year, one as soon as next month. Traditionally/Historically to keep inflation in check, rates were set to be more or equal to inflation. I cannot see this happening this time, but there should be at least 1.5% increase before year end......... OK I am hoping, but I may not be far wrong.

This is why I like Ally's no-penalty CD. It pays a little less, but no locking.

As far as when rates change, always...

After a rate increase? Who can say, whenever they feel they have to if they are losing deposits to competitors...
After a rate decrease? As fast as they can smash that button.

 

[Midpack]

Wonder when/if online savings % rates will increase? Ally hasn’t yet.

 

[audreyh1]

This is why I like Ally's no-penalty CD. It pays a little less, but no locking.

As far as when rates change, always...

After a rate increase? Who can say, whenever they feel they have to if they are losing deposits to competitors...
After a rate decrease? As fast as they can smash that button.

Ally has fallen behind. They will be forced to increase their savings rate and thus their no penalty CD rate soon.

 

[audreyh1]

Wonder when/if online savings % rates will increase? Ally hasn’t yet.

American Express increased to 0.6% recently. Synchrony increased to 0.6% a while back.

 

[eytonxav]

Remember, before committing to a long CD, there will be 3 more rate hikes at least this year, one as soon as next month. Traditionally/Historically to keep inflation in check, rates were set to be more or equal to inflation. I cannot see this happening this time, but there should be at least 1.5% increase before year end......... OK I am hoping, but I may not be far wrong.

I am waiting a little bit due to more rate increases forthcoming and expect another .5 next month. However, I'd be surprised if inflation can be tamed with only 1.5% by year end, especially with gummit's desire to add more spending fuel to the fire.

 

[youbet]

Remember, before committing to a long CD, there will be 3 more rate hikes at least this year, one as soon as next month. Traditionally/Historically to keep inflation in check, rates were set to be more or equal to inflation. I cannot see this happening this time, but there should be at least 1.5% increase before year end......... OK I am hoping, but I may not be far wrong.

Are you referring to the Fed funds rate or the Bank CD rates?

 

[Midpack]

This is why I like Ally's no-penalty CD. It pays a little less, but no locking.

As far as when rates change, always...

After a rate increase? Who can say, whenever they feel they have to if they are losing deposits to competitors...
After a rate decrease? As fast as they can smash that button.

+1. During my work years when our labor or raw materials prices went up, our prices went up immediately if possible. When our [-]labor or[/-] raw material prices went down, we usually had selective amnesia/delayed answering phones until our customers prompted us. For our many contract customers, we tried to structure pricing in that same vein, while our customers pushed for the opposite of course. What comes around, goes around I guess.

 

[Dtail]

This is why I like Ally's no-penalty CD. It pays a little less, but no locking.

As far as when rates change, always...

After a rate increase? Who can say, whenever they feel they have to if they are losing deposits to competitors...
After a rate decrease? As fast as they can smash that button.

Used to be that the Ally no penalty CD was at least higher than their savings rate.
Waiting for additional brokered CD yield increases and then will move about 300k from Ally to Fidelity.

 

[Spock]

Remember, before committing to a long CD, there will be 3 more rate hikes at least this year, one as soon as next month. Traditionally/Historically to keep inflation in check, rates were set to be more or equal to inflation. I cannot see this happening this time, but there should be at least 1.5% increase before year end......... OK I am hoping, but I may not be far wrong.

A couple of new quirks in the modern era compared to the Volcker Shock formula (real rates > than inflation rate) are:
1. the Fed also has a $30T balance sheet they can (partially) sell off in addition to raising the fed funds rate. There was an article where somebody postulated that every 100B in balance sheet normalization (Quantitative Tightening) equated to X% interest rate movement without moving the fed funds rate.
2. Debt levels are exponentially higher than previous generations which magnifys the impact of smaller interest rate hikes on the economy (and on % of gov budget spent on interest due to higher rates).

Place your bets and spin the wheel.

 

[Chuckanut]

I looked at the Ally no-penalty CD, but if figured that for me, a series of laddered 6 month t-bills would earn me twice as much, provide plenty of liquidity, and still allow me to take advantage of rising rates. Currently the 6 month t-bill rate is over 2x the Ally no-penalty rate of 0.6%.

IMO, Ally seems to be really dragging its feet (as are many others) and I don't see evidence that they will change and offer competitive rates.

 

[OldShooter]

... IMO, Ally seems to be really dragging its feet (as are many others) and I don't see evidence that they will change and offer competitive rates.

They will become more competitive if/when they need to do so in order to get the deposits they need. No need to do it sooner & no different than any other bank.

 

[Chuckanut]

They will become more competitive if/when they need to do so in order to get the deposits they need. No need to do it sooner & no different than any other bank.

I agree. I am sure they are finding a good supply of money at their current offerings.

My point was and is, I can find better returns with virtually no additional risk. They can keep their 0.6% no penalty account, and I will keep my money someplace else like a short term t-bill ladder. At least for now.

 

[Dtail]

I looked at the Ally no-penalty CD, but if figured that for me, a series of laddered 6 month t-bills would earn me twice as much, provide plenty of liquidity, and still allow me to take advantage of rising rates. Currently the 6 month t-bill rate is over 2x the Ally no-penalty rate of 0.6%.

IMO, Ally seems to be really dragging its feet (as are many others) and I don't see evidence that they will change and offer competitive rates.

They might change if they start seeing outflows to other online banks.

 

[Dtail]

A couple of new quirks in the modern era compared to the Volcker Shock formula (real rates > than inflation rate) are:
1. the Fed also has a $30T balance sheet they can (partially) sell off in addition to raising the fed funds rate. There was an article where somebody postulated that every 100B in balance sheet normalization (Quantitative Tightening) equated to X% interest rate movement without moving the fed funds rate.
2. Debt levels are exponentially higher than previous generations which magnifys the impact of smaller interest rate hikes on the economy (and on % of gov budget spent on interest due to higher rates).

Place your bets and spin the wheel.

Yup, don't think we will really see any CD rates that are near any 1980's rates.

 

[audreyh1]

I looked at the Ally no-penalty CD, but if figured that for me, a series of laddered 6 month t-bills would earn me twice as much, provide plenty of liquidity, and still allow me to take advantage of rising rates. Currently the 6 month t-bill rate is over 2x the Ally no-penalty rate of 0.6%.

IMO, Ally seems to be really dragging its feet (as are many others) and I don't see evidence that they will change and offer competitive rates.

They will eventually. They have been competitive in the past. They’re dragging their feet at the moment, but will respond when funds start seriously getting pulled.