Top 2-year CD rates recover some ground before Fed acts

Piggy bank in dollar bills

Even without an interest rate hike from the Federal Reserve, summer’s been good to 2-year CDs.

For the first four months of the year, the top nationally available return on 24-month certificates of deposit had been stubbornly stuck at 1.35% APY.

Finally in mid-May, 2-year yields took the first of three upward steps, with the most recent bump leading us to today’s top national rate of 1.52% APY, offered by E-Loan.

It’s welcome news for a term whose leading rate not only was mired below 1.30% APY for close to two years, from spring 2012 to spring 2014, but was at its post-recession low of 1.20% APY just 17 months ago.

True, we’ve seen better news in the term since then, when Citizens State Bank started paying 1.55% APY on its 2-year certificates of deposit last fall.

But when it stopped offering CDs nationally in January, the top yield sank to 1.35% APY and disappointingly stalled there until rates began increasing in May.

The rate offered by E-Loan is part of a dramatic new strategy that has moved the online bank from rates that didn’t even register in our CD rankings up to the very top spot not only for 2-year CDs, but across the 1-, 3-, 4- and 5-year terms as well.

E-Loan is the online operation of Popular Community Bank, which serves New York, New Jersey and South Florida, and is a subsidiary of Puerto Rico-based Popular Inc.

Despite headlines about the Puerto Rican government’s recent default on a key bond payment, the financial turmoil in the U.S. Commonwealth is not related to E-Loan’s sudden aggressive courting of deposits.

“(Our strategy) is completely unrelated to what is going on in Puerto Rico,” Manuel Chinea, Popular Community Bank’s chief operating officer, told us. “This is about us raising deposits to fund the very healthy commercial loan growth we’re experiencing in the U.S.”

Although Chinea couldn’t tell us how long E-Loan’s chart-topping rates will last, he indicated they expect to remain competitive through the rest of this year.

“But that doesn’t mean we might not pull back in a particular term as we manage the durations of our deposit portfolio,” Chinea added.

TOP 2-YEAR CD RATES: Nationally Available Bank Deals

Bank APY Minimum Deposit
E-Loan 1.52% $10,000
Silvergate Bank 1.46% $25,000
Synchrony Bank 1.45% $2,000
AloStar Bank of Commerce 1.40% $1,000
California First National Bank 1.40% $5,000
CIT Bank 1.40% $25,000
iGObanking 1.35% $1,000
Triumph Savings Bank 1.35% $1,000
BAC Florida 1.31% $1,500
First Internet Bank of Indiana 1.31% $1,000
Barclays Bank 1.30% No minimum
Discover Bank 1.30% $2,500
Nordstrom Bank 1.30% $1,000
Northpointe Bank 1.30% $1,000
Ally Bank 1.29% No minimum
Virtual Bank 1.26% $10,000
AmTrust Direct 1.25% $500
BankDirect 1.25% $10,000
Colorado Federal Savings Bank 1.25% $5,000
EverBank 1.25% $1,500
MyBankingDirect 1.25% $500
Salem Five 1.25% $10,000

Of course, savers fortunate enough to live in the right place or work for the right employer have options to outearn the top national rate by shopping for local deals.

We’re aware of 15 credit unions and community banks currently offering 2-year yields that not only beat E-Loan’s 1.52% but pay as much as 2.25% APY for savers who qualify.

In addition, one credit union — USAlliance Federal Credit Union — has two competitive offers that are available to savers anywhere in the country.

It's paying 1.61% APY on a standard 24-month certificate, or 1.51% if you prefer an option to bump up your return if rates increase.

USAlliance membership is available to select residents of Massachusetts and Connecticut, those who work for certain employers in New York, or anyone nationwide who makes a donation to an affiliated charitable organization.

TOP 2-YEAR CD RATES: Credit Union, Community Bank Deals

Bank States Term (in months) APY
Peoples Transport Federal Credit Union New Jersey 24 2.25%
Walpole Co-operative Bank Massachusetts 20 2.10%
Self Reliance New York Federal Credit Union New York 24 2.07%
Select Federal Credit Union Texas 24 2.00%
Four Corners Federal Credit Union New Mexico, Colorado, Utah, Arizona 24 1.96%
Red River Credit Union Texas, Arkansas 24 1.76%
FORUM Credit Union Indiana 23 1.75%
Idaho Central Credit Union Idaho, Nevada 24 1.75%
Cedar Falls Community Credit Union Iowa 25 1.75%
Veridian Credit Union Iowa, Nebraska 25 1.70%
Pioneer Federal Credit Union Idaho 25 1.65%
Chicopee Savings Bank Massachusetts, Connecticut 22 1.61%
North Platte Union Pacific Employees Credit Union Nebraska 24 1.61%
Transit Employees Federal Credit Union Washington, D.C. 24 1.55%
Bogota Savings Bank New Jersey 20 1.50%

Of course, all of these yields dwarf the national average among the nation’s banks.

According to our weekly survey of banks and thrifts, 24-month certificates are currently averaging 0.44% APY.

At its post-crisis worst, the 2-year average dropped to 0.36% APY in December 2013 and hit that low again in July 2014.

Compare that to February 2007, before irresponsible mortgage lending put the economy in a tailspin and the national average return for 24-month CDs was 3.78% APY.

With the Federal Reserve stepping in to rescue the economy by dropping interest rates in December 2008, savers’ yields have suffered for more than six years as the economy has taken its time in building up to full capacity again.

The Fed’s rate-setting committee met in July to discuss when it will finally nudge interest rates up and concluded that the economy is not yet throwing off the right signs to support a rate hike. However, an increase as early as next month looks promising and almost certainly will arrive by December.

After this much time, it feels like a tortuously long wait to see CD yields regain even a bit of their past glory. But to get back to national 2-year certificates paying anything close to the 3% to 4% yields we enjoyed before the 2008 financial crisis, wait we must.

Meanwhile, we’ll keep you posted on the best-paying options here.