Interest rates stuck at all-time lows
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With interest rates hovering at record lows, joy and sorrow should continue to be the theme for borrowers and savers in 2013.
"It will be another good year for borrowers, but unfortunately that means another tough year for savers," said Greg McBride, senior financial analyst for the interest rate tracker Bankrate.com.
As the economy limps along and unemployment remains stubbornly high, economists generally are projecting little change in interest rates, with no significant gains expected until 2015.
Watching rates this year "absolutely will be like watching paint dry," said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.
Robert Dye, chief economist at Comerica in Dallas, expects rates to be "flatish to up slightly" through the course of the year. "I don't see any major movement until mid-2015, when the Fed starts to unwind from its near zero interest rate policy," he said.
The Federal Reserve has signaled its intention to keep rates low to prop up the economy until the U.S. jobless rate falls from its current 7.8 percent to around 6.5 percent, Mr. Dye said. That's something he doesn't see happening until the end of 2014 at the earliest.
With that scenario in mind, here's what experts say consumers can expect for various loan and deposit rates this year:
• Home mortgages. There's no need for home buyers to rush to close a deal for fear of missing the best rates. Thirty-year loans, now averaging around 3.5 percent nationwide, could tick up closer to 4 percent by year end. But that would still be the most affordable in decades.
For homeowners thinking about refinancing, "There's a little bit more urgency to act," Bankrate.com's Mr. McBride said. That's because even small increases can make it harder to recoup the closing costs.
"If rates just go a little higher, that changes the equation for someone with a mortgage at 4.25 percent," he said.
• Home equity loans. It should be a good year on the home equity front for a couple of reasons. In addition to low rates, home prices are stabilizing nationwide. In the Pittsburgh region, they're moving higher.
"If home prices aren't falling, lenders are a lot more willing to lend against home equity." Mr. McBride said. That should spur increased competition, which could push rates even lower, he said.
• Auto loans. Rates on car loans are at record lows and still falling. The national average is around 4 percent on a five-year, new car loan and around 4.6 percent for a four-year, used car loan, according to Bankrate.com. But a number of big banks and credit unions are offering the loans at around 2.5 percent.
Borrowers tend to do a better job keeping up with car payments than other major loans when money is tight, which helps keep rates down.
"If you miss more than one car payment, the car won't be in the driveway tomorrow morning," Mr. McBride said. "People know that and tend to do a better job" staying current, he said.
• Credit cards. Rates didn't change much last year and aren't expected to move much in 2013. Still, there's a big difference between what cardholders with good credit pay compared with those with average or bad credit.
People with the best credit histories should continue to see single-digit interest rates for purchases and zero percent offers on balance transfers, Mr. McBride said.
Cardholders with blemishes on their credit reports, such as delinquencies or defaults, will continue to pay rates averaging in the mid-to-high teens and higher, he said.
Consumers who have improved their credit standing over the last year or two who may be stuck with cards charging 16 percent interest or more should shop around for a lower rate, Mr. McBride said.
• Deposit rates. "I wish I had better news on this front," Mr. McBride said. "I don't see rates moving much lower, but that's because they already are near the bottom of the barrel."
PNC's Mr. Hoffman said savers will have to live with rock-bottom rates for at least a couple of more years.
Still, people willing to shop around at banks and credit unions nationwide can significantly boost their returns.
For example, although the average yield on a one-year certificate of deposit nationwide was a record low 0.27 percent last week, the top-yielding one-year CDs at federally insured institutions were paying just over 1 percent, according to Bankrate.com's weekly survey.
People who look around also can snag premiums on savings accounts and money market deposit accounts.
First Published January 27, 2013 12:00 am