Leading 2-year CD rate remains at 18-month high

Piggy bank in dollar bills

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

CSBdirect raised its return to 1.55% APY last month, with a modest $1,000 minimum.

That's well over a full percentage point more than the national average of this term, which is 0.39% APY. It's also more than the top 3-year CD is paying.

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 planning to reverse course and start pushing short-term interest rates higher next 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
Nationwide 1.33% $500
BAC Florida 1.31% $500
CIT Bank 1.30% $25,000
NexBank 1.25% $10,000
Colorado Federal 1.25% $5,000
Salem Five Direct 1.25% $10,000
BankDirect 1.25% $10,000
First Internet Bank of Indiana 1.25% $1,000
Synchrony Bank 1.25% $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.

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
Nationwide An online bank owned by Nationwide Mutual Insurance Company and its affiliates. 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
CIT Bank The online consumer bank of CIT Group Inc., which offers financing to small businesses and middle-market companies. www.bankoncit.com
NexBank A division of NexBank Capital Inc., which has two branches in the Dallas area. www.nexbank.com
Colorado Federal An online bank based in Greenwood Village, Colorado. www.coloradofederalbank.com
Salem Five Direct The online division of Salem 5 Bank, which has 23 branches just north of Boston. www.salemfivedirect.com
BankDirect The online division of Texas Capital Bank, which has 12 locations in Texas. www.bankdirect.com
First Internet Bank of Indiana An online bank located in Indianapolis. www.firstib.com
Synchrony Bank Formerly known as GE Capital Retail Bank, this predominately online bank has a single branch in Bridgewater, New Jersey. The huge manufacturer General Electric plans to end its ownership of this bank through a future stock offering. www.myoptimizerplus.com

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

The only exception can be found at the TEXAR Federal Credit Union, which is paying its savers in Texas and Arkansas 1.75% APY with a $1,000 minimum.

After that, the best local returns can be found at Gulf Coast Federal Credit Union in Corpus Christi, Texas, and at the Transit Employees Federal Credit Union in Washington, D.C.

Both of those credit unions are 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, Bankaholic.com and Bankrate's database of the best CD rates 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 sometime next 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 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.

Savers can expect the average return of 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.

When will it happen?

Right at half of the economists recently polled by The Wall Street Journal predicted that the first rate hike will occur in June 2015.

After five 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.