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CD rates have reversed course!

SAN FRANCISCO—For the first time in five years, rates of certificates of deposits have reversed course and are declining, a new report reveals. Separately, mortgage rates have also declined to a two-year low.

The report from Analyticom signals a reversal of a rising-rate trend that started in June of 2014 and lasted until now. The last time deposit rates started declining, as they are now, was 12 years ago on the eve of the Great Recession in July of 2007.

“The main driver behind the decline in CD rates is the growing probability of a Fed rate cut in the second half of this year,” stated Analyticom’s Dan Geller. “Banks and credit unions are lowering interest rates on CDs in order to reduce their risk and exposure to shrinking net interest margins once the Fed cuts the Funds rate and loan rates start to decline.

“The decrease in interest rates on CDs is going to impact fixed-income savers, such as retirees, who like the safety and predictability of certificate of deposits despite their relative low interest rates, compare to investments that carry some risk,” continued Geller. “Risk-averse people, such as retirees, prefer the five-year CD, which offers the highest interest rate of all deposit types.”

In June of 2014, the national average of the five-year CD was only 0.75% and it increased to 1.28% after five years. However, in some markets the rate of the five-year CD is twice as high as the national average. As of June of this year, the national average rate for the five-year CD has declined to 1.21% according to data from the FDIC, Geller said.

Mortgage Rates Decline

Separately, mortgage rates hit their lowest levels since November 2016. Freddie Mac reported the 30-year fixed-rate average fell to 3.73% with an average 0.5 point. The rate is down from 4.55% one year ago. The 30-year fixed rate has fallen in seven of the last nine weeks.

The 15-year fixed-rate average dropped to 3.16%, down from 4.04% a year ago, while the five-year adjustable rate average fell to 3.39%, down from 3.87% a year ago.



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