Leading 2-year CD rate starts year at 1.55%

Piggy bank in dollar bills

The best nationally available 2-year CD continues to impress.

Citizens State Bank raised its return to 1.55% APY in early September with a modest $1,000 minimum.

That's well over a full percentage point more than the national average of this term, which is 0.41% APY. It's also close to what the top 3-year CD is paying (1.70% APY).

We haven't seen anything quite like this since February 2013, when Live Oak Bank offered 1.75% APY for less than two weeks.

But, to be honest, we aren't surprised.

With the Federal Reserve still likely to reverse course and start pushing short-term interest rates higher this year, every bank and credit union will need to start rebuilding the deposit base they've allowed to wither over the past seven years.

More about that later.

First, let's look at where you can find the best coast-to-coast deals right now.

TOP 2-YEAR CD RATES: Nationally Available Bank Deals

Bank APY Minimum Deposit
Citizens State Bank 1.55% $1,000
iGObanking 1.40% $1,000
CIT Bank 1.35% $25,000
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

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
Citizens State Bank A community bank with four branches in Florida. www.csbdirect.com
iGObanking The online division of Flushing Bank, which has 17 locations in New York. www.igobanking.com
CIT Bank The online consumer bank of CIT Group Inc., which offers financing to small businesses and middle-market companies. www.bankoncit.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 One of two online banks that are subsidiaries of GE Capital Corp., the financial services unit of the manufacturing giant. gecapitalbank.com
Ally Bank An online bank based in Charlotte, North Carolina. www.ally.com

Although some community banks and credit unions have been advertising local deals on 2-year CDs, our national leader blows most of those away.

At best, the top local deals match Citizens State Bank.

For example, Gulf Coast Federal Credit Union in Corpus Christi, Texas, and the Transit Employees Federal Credit Union in Washington, D.C., are both paying savers 1.55% APY — the same as our top national rate.

But we think community banks and credit unions will adjust to rising national rates rather quickly, and anyone in the market for a 2-year certificate of deposit should be searching newspaper ads and Bankaholic.com for the latest local deals.

Why is that?

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 dramatically reducing the amount of money they have invested in CDs, from just over $1 trillion dollars in 2010 to just over $500 billion today.

But with the Fed widely expected to begin raising the federal funds rate this year, banks and credit unions are beginning to offer slightly better returns in an effort to corral as much money as they can before deposits become substantially more expensive in 2015 and 2016.

How much more expensive?

A fall poll of Fed board members shows that they expect the federal funds rate will be between 1% and 2% by the end of 2015 and between 2% and 3% by the end of 2016.

If that happens, savers can expect the average return on most CDs to rise by about the same amount, or something like 1.4% to 2.4% on 2-year CDs by the end of 2015 and 2.4% to 3.4% by the end of 2016.

Savers were disappointed following the Fed's rate setting meeting in December, when it continued to say any action remains a "considerable time" away.

But that doesn't rule out rate increases starting this summer.

After six years of earning practically nothing on their bank accounts, savers deserve a return to reasonable rates as soon as possible.

Contributing editor Darci Swisher provided research for this report.