For bank account holders that are wondering when CD rates and savings account rates are going to rise, the key to that answer is inflation in the US.
Deflation is one factor that has made these historically low bank rates somewhat better. An inflation rate of -1.5% essentially adds 1.5% onto your interest rate for savings. Recently depositors are actually getting a better deal on banks CD rates due to the deflation factor.
This won’t last forever though. The next few months’ inflation numbers should reveal that this deflation trend is changing. The Consumer Price Index is expected to drop off according to Bromoney, driving inflation upwards.
This will be bad news for depositors. Those already low IRA CD rates will become lower when you factor in rising inflation. Bad news for anyone who thought they had high cd rates. The good news is that bank rates usually rise with inflation. The timing on how each bank will react to inflation will vary from bank to bank.
The Federal Reserve also reacts to inflation numbers. Since inflation hasn’t been a factor so far the Fed has left interest rates at near zero levels due to the high unemployment numbers in the US. However, as inflation begins to rise back up, you can be sure that the Fed will raise interest rates in response.
