Best national 1-year CD rates move up to 1.36%
Before the Federal Reserve's historic interest rate hike in December, we thought that we'd see a series of boosts in 2016 and banks' rate sheets would reflect the upward trend.
To the unfortunate detriment of savers everywhere, neither of those have panned out in the five months since.
True, the top nationally available bank yield in several major CD terms has risen. But the gains are minor. And in some terms, the top rate today is actually lower than it was before the Fed's hike.
Fortunately, 1-year CD rates are among those that have seen an incremental improvement. But hold off on champagne glasses: The 12-month increase is a measly bump from 1.30% to 1.36% APY.
As is usually the case, credit unions and community banks still offer better-paying local and regional deals, with several returning between 1.40% and almost 2%. There's even one promotional offer we'll tell you about that pays a remarkable 5% to certain lucky savers.
Still, it's a disappointing state of affairs for savers, who now seem to be left waiting for the next Fed hike before truly better 1-year CD rates start arriving.
When that might happen is a crystal-ball question, but we'll tell you what's on the Fed horizon.
The top national deals
Today's top yield of 1.36% APY is a high-water mark for national 1-year CDs over the last five years.
After plunging in the spring of 2011, the leading 12-month yield wavered between its post-recession low of 1.05% and 1.10% APY for all of 2012 and half of 2013.
Three times in the past year, the lead climbed to 1.35% APY — raised twice by Colorado Federal Savings Bank and once by Main Street Bank.
But none of those stuck around for long, repeatedly dropping us back to a top rate of 1.30% APY, the same you could earn at the time of the Fed's December rate hike.
Then in March, Country Bank unveiled its 1.36% APY offer, and it was the first time you could earn that much since June 2011.
Based in Massachusetts, Country Bank had previously only offered its CDs locally. But after adding an online account-opening system, the community bank made its certificates of deposit available to savers nationwide.
For some savers, Country Bank's minimum deposit requirement of $25,000 will be a significant bar. For those requiring a lower minimum investment, Colorado Federal offers the next best option at 1.30% APY on deposits of $5,000 or more.
TOP 12-MONTH CD RATES: Nationally Available Bank Yields
|Colorado Federal Savings Bank||1.30%||$5,000|
|BAC Florida Bank||1.26%||$1,500|
|State Bank of India-Chicago||1.26%||$2,500|
|State Bank of India-New York||1.26%||$5,000|
|AloStar Bank of Commerce||1.25%||$1,000|
|Live Oak Bank||1.25%||$2,500|
|Sallie Mae Bank||1.25%||$2,500|
|California First National Bank||1.24%||$5,000|
|First Internet Bank of Indiana||1.21%||$1,000|
Earning more with local deals
As is often the case, savers can find better 1-year returns by turning to credit unions and community banks.
In fact, two credit unions even offer nationwide deals in the 1-year range:
- USAlliance Federal Credit Union is offering new members 1.51% APY on 15-month certificates, available to select residents of Massachusetts and Connecticut, those who work for certain employers in New York and anyone nationwide who donates to its affiliated charitable organization.
- Veridian Credit Union previously offered its CDs only to residents of Iowa and Nebraska, but has since made them available to anyone nationwide who signs up for the digital payment service Dwolla (details provided on Veridian’s website). It is currently offering 1.40% on 15 months.
But for those who live in the right place or work for the right employer, it's possible to make even more from 1-year CDs.
The best return on strictly local deals is pushing 2% this month.
TOP 1-YEAR CD RATES: Credit Union, Community Bank Deals
|Bank||States||Term (in months)||APY|
|Leaders Credit Union||Tennessee||12||5.00%|
|Peoples Transport Federal Credit Union||New Jersey||12||1.94%|
|Self Reliance New York Federal Credit Union||New York||12||1.92%|
|Farmers State Bank||Iowa||15||1.57%|
|Beehive Federal Credit Union||Idaho, Washington, Oregon, Nevada, Montana, Wyoming||15||1.50%|
|Idaho Central Credit Union||Idaho, Nevada||12||1.50%|
|Pioneer Federal Credit Union||Idaho||13||1.50%|
|Capital Communications Federal Credit Union||New York||13||1.50%|
|North Platte Union Pacific Employees Credit Union||Nebraska||12||1.50%|
|TEXAR Federal Credit Union||Texas, Arkansas||12||1.45%|
|Cedar Falls Community Credit Union||Iowa||15||1.45%|
|Bank of Yates City||Illinois||14||1.45%|
|Bank of the Valley||Nebraska||11||1.41%|
|Walpole Co-operative Bank||Massachusetts||15||1.40%|
|Premier Credit Union||Iowa||14||1.40%|
If you qualify, these deals are worth your effort because they all pay at least five times more than the current national 12-month average of 0.28% APY, according to our weekly nationwide survey of banks and thrifts.
Watching for a Fed impact
Average 1-year CD rates had fallen as low as 0.22% APY and still sat there in January 2014. But improvements have been painfully slow, completely stalling between 0.27% and 0.28% APY for 19 months now.
Of course, all of these rates are a far cry from the 12-month average of 3.78% APY we saw in February 2007 — before reckless mortgage lending plunged us into the Great Recession.
The dramatic descent to today's rates is a result of the Federal Reserve aiming to stave off a complete financial collapse by dropping interest rates to about zero in December 2008 — and keeping them anchored there for seven years.
That dismal period technically ended in mid-December, with the Fed's rate-setting committee approving what was expected to be the first of several small increases in the federal funds rate.
That's what banks pay to borrow money from each other through the Fed, and when it rises, banks become more financially motivated to attract deposits from consumers, in theory improving their rate sheets to do so.
The Fed had expected to "normalize" rates by moving them gradually upward over the next several years, suggesting possibly four small rate hikes in 2016.
But global stability concerns, historically low gasoline prices and the struggle for inflation to reach a healthy level have given the Fed pause on making further hikes, with no increases implemented at any of the last three meetings.
In fact, it's become clear that the Fed is now planning an even slower course forward, perhaps raising rates only twice a year or so.
The Fed's next meeting is June 14-15. With its high dependence on real-time economic data before making each decision, it's entirely unknown what conclusion it will reach this time.
Many economists are currently predicting the Fed will announce a second hike in June, while other Wall Street forecasters are placing higher odds that we'll be left waiting until July or September.
Whatever happens, let's hope it translates into higher bank returns by the time a 1-year CD bought now matures next spring.