Top 12-month CD rates rise then fall in early 2015

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For one brief and shining moment earlier this month, the top nationally available CD rate was at a three-and-a-half year high.

Earlier this month, iGOBanking boosted its 12-month return to 1.30% APY — a yield we hadn't seen since July 2011.

Unfortunately, the deal was short-lived. After just 10 days, the bank slashed its yield to a dismal 0.15% APY.

Now the top national rate is from BankDirect — 1.21% APY, with a hefty $10,000 minimum deposit.

That means there’s a better chance that a community bank or credit union near you is offering a better return on 1-year CDs.

It's true that these rates are only available to savers who live and work in a limited area or specific industry, but they're well worth searching out.

Pioneer Valley Federal Credit Union, for example, is paying Massachusetts savers 2.10% APY with a $1,000 minimum. That's a better yield than what you'll find from the best local and national 36-month CD deals.

You'll also find that General Electric Credit Union is offering members in Ohio, Kentucky and Indiana 1.50% APY. But that's with hefty $100,000 minimum.

Here are some more examples of the best local deals currently being offered.

TOP 1-YEAR CD RATES: Local Deals

Bank/Credit Union (APY) State Contact
Pioneer Valley Federal Credit Union 2.10% Massachusetts www.pioneervalley.coop
General Electric Credit Union 1.50% Ohio, Kentucky, Indiana www.gecreditunion.org
Gulf Coast Federal Credit Union 1.30% Texas www.ccgcfcu.com
HAB Bank 1.30% 1.30% in California, pays 1.25% in New Jersey and New York www.habibamericanbank.com
LOMTO Federal Credit Union 1.25% New York www.lomto.org

If you can't find a similar offer where you live, then the best national deals are your best bet.

While the top return is lower than it was earlier this month, it's still higher than savers were able to bank on last February.

A year ago, the top national yield was 1.10% APY for most of the month and then dropped to 1.05% APY.

TOP 1-YEAR CD RATES: Nationally Available Bank Deals

Bank APY Minimum Deposit
BankDirect 1.21% $10,000
CIT Bank 1.20% $1,000
Synchrony Bank 1.20% $25,000
Nationwide Bank 1.19% $500
BAC Florida 1.18% $500
VirtualBank 1.16% $10,000
CalFirst 1.15% $5,000
Sallie Mae 1.15% $2,500
AloStar 1.10% $1,000
Colorado Federal 1.10% $5,000
GE Capital 1.10% $500

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
BankDirect The online division of Texas Capital Bank, which has 12 locations in Texas. www.bankdirect.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
Nationwide Bank An online bank owned by Columbus, Ohio-based Nationwide Mutual Insurance. www.nationwide.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
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
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
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
Colorado Federal Savings Bank An online bank based in Greenwood Village, Colorado. www.coloradofederalbank.com
GE Capital An online bank owned by GE Capital Corp. the financial services unit of the manufacturing company. gecapitalbank.com

All of these rates are at least four times higher than the current average of this term, which is 0.27% APY, according to our most recent survey of major banks and thrifts.

But the Federal Reserve has driven short-term interest rates to record lows by drastically reducing what's called the federal funds rate. That's what commercial banks pay 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 $1.45 trillion in early 2009 to just over $500 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, before rebounding slightly the last three months. It still sat at only 0.692 in December.

Back in 2008, before the Feds lowered the federal funds rate to zero, it was four times higher — 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,” which economists took to mean at least six months.

In December, the central bankers added additional language to the statement, saying they could be “patient” when it comes to raising rates.

At a news conference, Fed Chair Janet Yellen said “patient” meant at least two committee meetings — or less than six months.

When the Fed's rate-setting committee met last month, it continued to say it could be "patient" but dropped "considerable time" from its statement.

That was widely interpreted as a signal that the central bank remains on track to begin raising the federal funds rate in midsummer or early fall.

Expectations are that once it begins increasing rates, the Fed will boost them a quarter of a point at each of the eight meetings it holds per year.

An official survey taken in December found that 15 of the Fed’s 17 governors thought the fed funds rate would be raised sometime in 2015.

The majority expected it to be just over 1% by the end of the year and reach a target rate of 3.625% by the end of 2017.

If that turns out to be the case, savers can expect the average return on 1-year CDs to reach something like 1% by the end of 2015 and 2% to 3% by the end of 2016.

Contributing editor Sabrina Karl provided research for this report.