Best 1-year CD rates climb to four-year high

piggy bank in glasses

The top nationally available return on 1-year CDs is the highest it's been in nearly four years, with Colorado Federal Savings Bank offering 1.35% APY.

That's almost as high as our top nationally available 2-year CD, and it's enough to beat out most local deals offered by community banks and credit unions.

Of course, we're still talking about a skimpy return.

The top national rate dropped below 1.40% APY in June 2011. Since then we've seen it as low as 1.05% APY in 2012 and 2013.

This February, iGOBanking boosted its 12-month return to 1.30% APY — a yield we hadn't seen since August 2011. But that was short-lived, and 1-year CD rates inched back down again.

Now Colorado Federal, a bank that had been offering 1.10% APY for nine months, has boosted its rate by a full quarter of a percentage point.

TOP 1-YEAR CD RATES: Nationally Available Bank Deals

Bank APY Minimum Deposit
Colorado Federal 1.35% $25,000
CIT Bank 1.25% $1,000
Synchrony Bank 1.23% $25,000
BankDirect 1.21% $10,000
BAC Florida 1.20% $500
California First National Bank 1.16% $5,000
VirtualBank 1.16% $10,000
Northpointe 1.15% $10,000
Sallie Mae 1.15% $2,500
AloStar 1.10% $1,000
American 1.10% $500
Silvergate 1.08% $25,000

To qualify for this list, a bank must allow savers from all 50 states to buy its certificates of deposit online or through the mail.

Our CD calculator will help you figure out the interest you'll earn, for any term, amount and interest rate.

TOP 1-YEAR CD RATES: About The Banks

Bank Description URL
Colorado Federal An online bank based in Greenwood Village, Colorado. www.coloradofederalbank.com
CIT Bank The online consumer bank of CIT Group Inc., which offers financing to small and midsize companies. www.bankoncit.com
Synchrony Bank Formerly known as GE Capital Retail Bank, this predominately online bank has a single branch in Bridgewater, New Jersey. www.myoptimizerplus.com
BankDirect The online division of Texas Capital Bank, which has 12 locations in Texas. www.bankdirect.com
BAC Florida Bank A community bank with one location in Coral Gables that sells its products nationally through My e-BAnC. www.bacflorida.com
California First National Bank An online bank owned by the same company that runs California First Leasing Corp., which finances all sorts of high-tech business equipment. www.calfirst.com
VirtualBank The online division of Sabadell United Bank, which has 23 branches in Florida, and is owned by Banco Sabadell, Spain's fourth-largest bank. www.virtualbank.com
Northpointe A community bank with a single branch in Grand Rapids, Michigan. www.northpointe.com/
Sallie Mae An online bank owned by the student lender. www.salliemae.com
AloStar Bank of Commerce An online bank based in Birmingham, Alabama, formerly known as Nexity Bank. retail.alostarbank.com
American Bank Which operates an online portal and a single branch in Allentown, Pennsylvania. www.ambk.com
Silvergate Which has four branches in Southern California and is a subsidiary of Silvergate Capital Corp. www.silvergatebank.com

The very best rates typically come from community banks and credit unions that only take deposits from savers who live nearby.

Last month you could have found around six community banks and credit unions that were beating out the top national deals.

But now that Colorado Federal has upped the ante, we've found only one local deal available on 12-month CDs that will give you the opportunity to beat out the best national deal.

That deal comes from First Service Credit Union, which is paying Texas savers 1.40% APY with a $1,000 minimum.

The national average return on 1-year CDs is still well below 1% — 0.27% APY in our most recent survey.

Over the past several decades, savers could usually count on earning something like 2% or 3% on a 1-year CD.

But to rescue the economy from its worst crisis since the Great Depression, the Federal Reserve drove short-term lending (and therefore savings) rates to record lows.

It did that by drastically reducing what's called the federal funds rate — the interest commercial banks are charged to borrow money from each other through the Fed.

Since it's been essentially zero since December 2008, banks have been able to get pretty much all of the money they need for loans through the Fed for essentially nothing.

When the banks didn't need our deposits, they slashed rates, and savers responded by yanking money out of CDs, with those deposits falling from $1.45 trillion in early 2009 to just under $480 billion today.

One measure of how little savers are being paid is the Cost of Funds Index compiled by the Federal Home Loan Bank of San Francisco. It asks banks in California, Arizona and Nevada how much they're actually paying for deposits.

The index hit a record low of 0.663% in September and still sat at only 0.687% in March.

In late 2008, before the Feds lowered the federal funds rate to zero, it was almost four times higher at 2.757%.

Over the past six years, the Fed’s rate-setting committee regularly issued statements saying it expected to keep interest rates near zero for “a considerable time” or, more recently, that it would be "patient" about raising rates.

But now the nation's bank-for-banks has dropped both phrases from its policy guidance and could start raising the federal funds rate as early as June, although later this year seems more likely.

The most recent official survey of the 17 Fed governors shows they expect the federal funds rate to be just below 1% by the end of this year, just below 2% by the end of 2016 and to reach their ultimate target of 3.75% sometime in 2018.

Contributing editor Sabrina Karl provided research for this report.