February's leading 2-year CD rates start at 1.55%

Piggy bank in dollar bills

The best returns on 2-year CDs can be found at local community banks and credit unions after nationally available returns took a tumble in early 2015.

Gulf Coast Federal Credit Union in Texas and Transit Employees Federal Credit Union in Washington, D.C., are offering their members 1.55% APY with $500 minimums.

Those returns are one-fifth of a percentage point more than you'll get from the best national deals.

That wasn't the case when the year began.

Citizens State Bank had offered 1.55% APY to all savers since early fall. But the small Florida bank limited CD sales to local customers last month, and now the best national yield is 1.35% APY (more on that later).

While it's true that the best local deals are only available to savers who live and work in a limited area or specific industry, they're far more generous than the best nationally available deals right now.

In many cases, those accounts must be opened in person, but the rates are well worth the trip.

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

TOP 2-YEAR CD RATES: Local Deals

Bank/Credit Union (APY) State Contact
Gulf Coast Federal Credit Union 1.55% Texas www.ccgcfcu.com/
Transit Employees Federal Credit Union 1.55% Washington, D.C. www.tefcu.org
LOMTO Federal Credit Union 1.45% New York www.lomto.org
TEXAR Federal Credit Union 1.40% Texas, Arkansas www.gotexar.com
GPO Federal Credit Union 1.36% Washington, D.C. www.gpofcu.com/
Security First Credit Union 1.36% Texas www.securityfirstcu.com

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

While the highest return is one-fifth of a percentage point lower than it was last month, it's still higher than savers were able to make last February.

Back then, the highest rate you could earn was 1.25% APY.

Today the best nationally available return is 1.35% APY, available from both CIT Bank and Synchrony Bank with $25,000 and $2,000 minimums, respectively.

TOP 2-YEAR CD RATES: Nationally Available Bank Deals

Bank APY Minimum Deposit
CIT Bank 1.35% $25,000
Synchrony Bank 1.35% $2,000
Nationwide 1.33% $500
BAC Florida 1.31% $500
CalFirst 1.30% $5,000
GE Capital 1.30% $500
Ally Bank 1.29% No minimum
VirtualBank 1.26% $10,000
AloStar 1.25% $1,000
BankDirect 1.25% $10,000
Colorado Federal 1.25% $5,000
First Internet Bank of Indiana 1.25% $1,000
NexBank 1.25% $10,000
Salem Five Direct 1.25% $10,000

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 2-YEAR CD RATES: About The Banks

Bank Description URL
CIT Bank The online consumer bank of CIT Group Inc., which offers financing to small businesses and middle-market companies. www.bankoncit.com
Synchrony Bank Formerly known as GE Capital Retail Bank, this predominately online bank is being spun off by General Electric and has a single branch in Bridgewater, New Jersey. www.myoptimizerplus.com
Nationwide An online bank owned by Nationwide Mutual Insurance. www.nationwide.com
BAC Florida 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
GE Capital Bank Another online bank that's a subsidiary of GE Capital, the financial services unit of the manufacturing giant. gecapitalbank.com
Ally Bank An online bank based in Charlotte, North Carolina. www.ally.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
AloStar Bank of Commerce An online bank based in Birmingham, Alabama, formerly known as Nexity Bank. retail.alostarbank.com
BankDirect The online division of Texas Capital Bank, which has 12 locations in all five of the state’s major cities — Dallas, Fort Worth, Houston, San Antonio and Austin. www.bankdirect.com
Colorado Federal An online bank based in Greenwood Village, Colorado. www.coloradofederalbank.com
First Internet Bank of Indiana An online bank located in Indianapolis, Indiana. www.firstib.com
NexBank A division of NexBank Capital Inc., which has a single branch in Dallas. www.nexbank.com
Salem Five Direct The online division of Salem Five Bank, which has 29 branches just north of Boston. www.salemfivedirect.com

Over the past several decades, savers could usually count on earning something like 4% or 5% on a 2-year CD.

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.

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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 2-year CDs to reach something like 1.4% to 2.4% by the end of 2015 and 2.4% to 3.4% by the end of 2016.

Contributing editor Sabrina Karl provided research for this report.