National CD Rates Mostly Unchanged, Dallas Slips Slightly on 4- and 5-Year Rates
NEW YORK ( MainStreet) Certificate of deposit rates are mostly locked in place, according to RateWatch, a premier banking data and analytics service owned by TheStreet, Inc. ( NASDAQ: TST ). Information gleaned from 96,000 financial institutions show the national average for 5-year CDs slipped only slightly since last week, from an annual percentage yield (APY) of 0.81% to 0.80%. All other maturities remained generally unchanged, floundering at historic lows. Dallas rates for a 5-year term CD were a bit more favorable at 0.86%, but still off from 0.87% last week.
"CD rates were effectively unchanged from a week ago as banks took little action during one of the slowest business weeks of 2013," reported Joe Deaux, Economist for TheStreet. "September events could trigger more active rate changes as the Federal Reserve is expected to announce whether it will taper its economic stimulus program."
Other terms for CD offerings in Dallas also were slightly more favorable than national averages, with a 6-month average rate unchanged from a week ago at 0.16% and a one-year CD holding steady at 0.28%. National averages for the same terms were 0.14% and 0.23%, respectively.
While Treasury yields have been creeping up for the past four months, Fed funds have been effectively at zero since 2008, and consumer deposit account rates are still stuck in the cellar. Analysts are keeping an eye on the upcoming August employment report for a clue as to when the Federal Reserve will begin its exit from the quantitative easing (QE) program, a trigger to eventual higher deposit rates.
"If the data released for August confirms a consistent pattern of net job creation, then an early exit from the Fed's QE program is much more likely," Blu Putnam, chief economist for the CME Group, writes in a recent analysis. "The Fed is also focused on communicating that its target federal funds rate will stay near zero through the QE exit process and for an extended period beyond."
That means consumers may have to wait a while for any significant rise in short-term bank deposit rates.
Banks are struggling to balance the effect of higher interest rates on securities, yet still facing thin deposit spreads. FDIC insured institutions reported a $51.1 billion (89.1%) decline in unrealized gains in their securities portfolios during the second quarter. Meanwhile, the average net interest margin the difference between the average yield banks earn on loans and other investments and the average cost of funding those investments fell to 3.26%, its lowest level since the fourth quarter of 2006.
"The trends we have seen in recent quarters continued in the second quarter," says FDIC Chairman Martin J. Gruenberg. "Asset quality continues to recover, loan balances are trending up, fewer institutions are unprofitable, the number of problem banks is down, and the number of failures is significantly below levels of a year ago. However, industry revenue growth remains weak, reflecting narrow margins and modest loan growth. And the current interest rate environment creates an incentive for institutions to reach for yield, which is a matter of ongoing supervisory attention."