The Federal Reserve and Online Bank Rates

The Federal Reserve delivered a 75-point rate cut yesterday reducing the federal funds rate to 2.25%. Banks have lowered their own prime rates down to 5.25% marking the lowest level of the prime rate since 2004. Similar to how January and February saw the slow demise of 5.00% online bank deposit rates, the remainder of March and April seem likely to be the end of the 4.00% rates on money markets, checking accounts, savings accounts, and short-term CDs. Short-term bond funds and money funds are also likelt to see a decrease in yields as portfolio managers purchased new underlying securities with lower rates for their funds. Treasury-only funds in particular are saw going to see a significant loss in yield as US Treasuries have been purchased in large quantities over the last three weeks pushing yields on T-Bills below 2.00%.

The good news for a savings investor is that economists are forecasting a relatively short period of time before the Fed will need to reverse direction and raise interest rates to combat inflation. Whether or not the US economy is out of a recession at that point remains to be seen, but the fed funds rate may not stay below 3.00% as long as we would in a long protracted recession without inflation concerns.

Online bank deals available today include:

EverBank 4.51% introductory APY on a money market account

EverBank 4.51% introductory APY on a checking account

Countrywide Bank 1-year CD 4.20% on deposit of $10,000 or more

Reward checking account with yields as high as 6.26%