When Will CD Rates Finally Go Up?

Dear Dr. Don,What needs to happen before we see rates go up for CDs?-- Jim Juncture

Dear Jim,To see CD rates head higher, you'll need to see the Federal Reserve Board start to tighten its targeted federal funds rate, end quantitative easing or both. Right now that target is zero percent to 0.25%. The federal funds rate is the rate that banks loan each other reserves.

The Federal Reserve Board's Open Market Committee, or FOMC, takes steps to have the federal funds rate stay within its targeted range of zero percent to 0.25%. Those steps include quantitative easing, where the FOMC buys securities from banks. The money the Fed pays the banks for the securities ends up in the banking system as reserves. The reserve market is awash in liquidity. The current round of quantitative easing is set to end in June.

When the banks can borrow from each other at next to nothing, they don't feel a whole lot of pressure to pay depositors high yields on CDs. This has hit seniors particularly hard, as they try to earn income in conservative investment options.