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Greg McBride

Greg McBride: Tough luck, savers

By Greg McBride ·
Tuesday, January 19, 2016
Posted: 6 am ET

Don't hold your breath for any big improvement on the returns you're earning on your savings accounts and certificates of deposit.

Interest rates are rising, but not on savings. At least not yet.

The forecast

With the Federal Reserve hiking interest rates, savers may have high hopes that better yields will finally materialize in 2016. Unfortunately, the improvement in savings and CD yields will be muted and likely won't come until the back half of the year, with little to no material improvement following the first couple of Fed rate hikes.

By the end of the year, I predict that the average yield on 1-year CDs will be 0.65%, while the average 5-year CD will pay 1.25%. Those rates are higher than the current levels, but still pretty modest. Teensy, though maybe not teensy-weensy.

Why so meager?

There are a couple factors that will keep savings rates in check for now. Many banks are already sitting on a pile of deposits and won't need to raise payouts to bring in more. Also, many banks will use rate hikes as an opportunity to breathe some life into their margins by raising rates on loans, as many have already started doing, while holding the line on deposit rates.

Finally, waiting for the improvement to come to you is a recipe for disappointment. Instead, seek out the top yielding banks and credit unions as these are the most likely to raise payouts to remain competitive. Just don't expect it right away.

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