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Interest Rate Outlook for 2011
Published: 03/04/2011 by Kristie Lorette
Interest rates on various financial products can and do sometimes change on a daily basis. The last few years have sent interest rates of all kinds—mortgages, certificates of deposit and credit cards—on a rollercoaster ride. While the rates have mostly been on the down slope, bumps up and down have occurred. So, what are the experts expecting interest rates to do in 2011? Again, it depends on the type of interest rate you are looking at first.
Mortgages
Mortgage interest rates are expected to remain at historically low rates. In general, though, the rates on mortgages will start to creep up. Freddie Mac Chief Economist Frank Nothaft predicts that by the end of 2011, the interest rates will be higher than they were at the end of 2010. LendingTree economists and the Mortgage Bankers Association both predict that the 30-year-fixed rate mortgage rate will reach 5.5% in 2011.
Certificates of Deposit
In 2010, the majority of interest rates on certificates of deposit were very close to 1%. The interest rates on these savings vehicles are not expected to drop below the zero percent mark in 2011. The rates, however, are not expected to go up all that much either. This year continues to have a dismal outlook for savers earning money on their money.
Credit Cards
Credit card interest rates in 2010 had the opposite experience of that of mortgage and certificate of deposit rates. Over a five-year period, the average credit card interest rate went from12.59% to 14.44%. What will happen to these rates in 2011 is not a cut and dried answer. Competition, the cost of borrowing for the credit card issuer and the risk in the economy all play a role in how the interest rates for credit cards are set.
According to Kenneth Clayton, who is the senior vice president and general counsel for card policy at the American Bankers Association, "To the extent that inflation increases and the cost of money goes up and the risk continues to remain in the economy, I think there is certainly some pressure for rates to go up."
The interest rate outlook for 2011 varies according to the type of interest rate you are considering. In general, rates will remain low on products such as mortgages and savings accounts such as certificates of deposit. Credit cards, on the other hand, may start to see more of an increase in interest rates. The end result, however, remains to be seen as the year continues to unfold.
