New leader in 1-year CD rates boosts return
There's a new leader in 1-year CDs, and it's paying more than you could have earned last month, according to our December survey of the best nationally available rates.
AloStar Bank of Commerce is offering 1.10% APY with a $1,000 minimum.
GE Capital Retail, DollarSavingsDirect and GE Capital had been in a three-way tie for the top spot, paying 1.05% APY.
But AloStar just bumped up its rate and is now offering the better deal.
It's nice to see rates tick up, but all savings rates are still incredibly low.
The Federal Reserve has driven long- and short-term interest rates down and plans to keep them there until there's sustainable improvement in the economy.
It's done that by manipulating the federal funds rate, the Fed's key lever in holding down returns on things like CDs.
At one time economists were confidently predicting that the fed funds rate would be pushed up this year. But those projections have been repeatedly pushed back to 2016.
There's no reason to expect new Fed Chairman Janet Yellen will accelerate the change in policy when she takes office Feb. 1, based on her statements and voting record as the bank's current vice chair.
"The Fed under Janet Yellen will be committed to a very low federal funds rate for several more years," Jake Lowery, Treasury trader and portfolio manager for global interest rates at ING U.S. Investment Management, recently told Reuters.
Goldman Sachs chief economist Jan Hatzius expressed similar sentiments in a webcast, saying that a Yellen-led Fed "will put a lot of weight on the employment side of its mandate and it's going to take a long time to get unemployment down to where the Fed wants it to be."
If anything, economists believe Yellen might be even slower to embrace raising the fed funds than current Fed Chair Ben Bernanke.
Here are the best nationally available 12-month certificates of deposit, as of today:
Top 12-month CD Rates
|GE Capital Retail||1.05%||$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.
Click here to compare these returns with the top CD rates from dozens of banks in your area.
Our CD calculator will help you figure out the interest you'll earn, for any term, amount and interest rate.
How to buy the top 1-year CD rates
|AloStar Bank of Commerce||An online bank based in Birmingham, Ala., formerly known as Nexity Bank.||retail.alostarbank.com|
|GE Capital Retail Bank||The other bank that's a subsidiary of GE Capital Corp.||banking.gecrb.com|
|DollarSavingsDirect||An online division of Emigrant Bank, which has two New York-area branches, one in Manhattan and the other in suburban Ossining.||www.dollarsavingsdirect.com|
|CIT Bank||The online consumer bank of CIT Group Inc., which offers financing to small- and middle-market companies.||www.bankoncit.com|
|Pacific Mercantile||A community bank with seven branches in southern California.||www.pmbank.com|
|CapitalSource Bank||A Los Angeles-based lender to small- and middle-market business which has 21 branches in central and southern California.||www.capitalsourcebank.com|
|GE Capital||One of two online banks, each with its own FDIC insurance, that are subsidiaries of GE Capital Corp., the financial services unit of the manufacturing giant.||gecapitalbank.com|
|Palladian PrivateBank||An online division of The PrivateBank and Trust Co., which has 34 branches in nine states.||www.palladianprivatebank.com|
|Colorado Federal Savings Bank||An online bank based in Greenwood Village, Colo.||www.coloradofederalbank.com|
|Ally||An online bank based in Charlotte, N.C.||www.ally.com|
Over the past several decades, savers could usually count on earning something like 2% or 3% on a 1-year CD.
But the Federal Reserve has driven returns to record lows in an attempt to haul the economy out of the worst financial crisis and recession since the 1930s.
It did that by lowering the federal funds rate to essentially zero in December 2008 — and leaving it there.
Since then, the average return on 12-month CDs has fallen from 2.30% APY to a record-low 0.22% APY today.
Late last year, Fed Chairman Bernanke said the central bank would start bumping rates up when the unemployment rate hit 6.5%.
With that goal in mind, savers anxiously watched the jobless rate fall to 7.3% in August. Not quite there, but closing in.
Then Bernanke told a news conference after the Fed's rate-setting committee met on Sept. 18 that “the first increases in short-term rates might not occur until the unemployment rate is considerably below 6.5%."
Indeed, the Fed chairman said a return to market-driven rates — and a reasonable return on our savings — could be "several more years" down the road.
How low must the jobless rate drop before the Fed acts?
The new target will be more like 6%, according to Hatzius, the Goldman Sachs economist.
So even though the unemployment rate fell to a five-year low of 7.0% in the November jobs report released Friday, America's savers won't see higher returns anytime soon.
Contributing editor Darci Swisher contributed to this report.
Mitch Strohm on Google Plus.