Top 5-year CD rates not yet following Fed's lead

White piggy banks with stacks of money and moneybag

After enduring seven years of record-low returns on their bank accounts, savers greeted the Federal Reserve's first rate hike with great anticipation.

But a month later we're still waiting for the party to begin.

Our banks and credit unions have made little or no effort to follow the Fed's lead and boost the yields they pay on savings accounts or certificates of deposit.

The top nationally available return on 5-year CDs, for example, hasn't changed since late July.

Local deals from credit unions and community banks continue to pay up to six-tenths of a percentage point more than the leading national return — over 3% in one instance.

But they aren't taking off, either.

So when will long-suffering savers finally get to reap some rewards — even tiny ones — from this move by the Fed? Whatever the answer, it can't come soon enough.

The top national deals

E-Loan boosted the top nationally return on 5-year CDs to 2.45% APY in late July when it amped up its entire rate sheet to help fuel its burgeoning lending business.

It was a welcome, if minor, improvement after a dismal start to the year — when the best nationally available return retreated from 2.35% to 2.25% APY and then stalled there for the better part of six months.

And unlike the 2.50% deal Live Oak offered for four days last February, this offer from E-Loan has stuck for more almost six months now, making it the best sustained lead we've seen since September 2011.

Two weeks ago, E-Loan got some company at the top when EverBank briefly offered the same 2.45% APY on 5-year certificates. But EverBank — well-known for weekly tweaks to its rate sheet — surrendered the lead back to E-Loan last Friday.

While still far below the 3% and 4% returns you could earn before the financial crisis, E-Loan's yield is certainly head and shoulders above what you could earn back in May 2013, when the top national 5-year yield hit its postrecession low of 1.75% APY.

E-Loan is an online portal operated by Popular Community, which operates almost 50 branches in New York, New Jersey and south Florida.

It also holds or shares the lead in nationally available 2-, 3- and 4-year certificates of deposit.

TOP 5-YEAR CD RATES: Nationally Available Bank Deals

Bank APY Minimum Deposit
E-Loan 2.45% $10,000
EverBank 2.35% $1,500
Barclays Bank 2.25% No minimum
Synchrony Bank 2.25% $25,000
First Internet Bank of Indiana 2.22% $1,000
State Bank of India - Chicago 2.22% $2,500
State Bank of India - New York 2.22% $5,000
Capital One 360 2.20% No minimum
State Farm Bank 2.20% $500
CIT Bank 2.20% $1,000
Discover Bank 2.00% $2,500
Colorado Federal Savings Bank 2.15% $5,000
Sallie Mae Bank 2.10% $2,500
Salem Five Bank 2.10% $10,000
American Heartland Bank & Trust 2.05% $1,000
North American Savings Bank 2.02% $1,000
Ally Bank 2.00% No minimum
1st Source Bank 2.00% $500
American Bank 2.00% $500
GE Capital Bank 2.00% $500
Hudson City Savings Bank 2.00% $500

Earning more with local deals

Of course, there are always some lucky savers who can outearn the top national rate with certificates of deposit from a community bank or credit union.

These institutions often offer chart-topping yields to savers who live or work nearby, or are willing to jump through a hoop or two.

These smaller financial institutions — promoting local deals stretching from New York City and the Mid-Atlantic to the desert Southwest and California’s Bay Area, with more than a dozen in between — have also played a role in driving up rates.

Among the best local and regional offerings are 5-year CDs currently paying up to 3.05% APY.

TOP 5-YEAR CD RATES: Credit Union, Community Bank Deals

Bank States Months APY
Self Reliance New York Federal Credit Union New York 60 3.05%
Four Corners Federal Credit Union New Mexico, Arizona, Colorado, Utah 60 2.78%
Deere Employees Credit Union Illinois, Iowa 60 2.75%
General Electric Credit Union Ohio, Indiana, Kentucky 60 2.75%
IH Mississippi Valley Credit Union Illinois, Iowa 60 2.63%
Advancial Federal Credit Union Texas, Oklahoma, Louisiana, New Jersey, Alaska 60 2.55%
Green Mountain Credit Union Vermont 60 2.53%
Founders Federal Credit Union South Carolina 60 2.52%
Bank of Utica New York 60 2.50%
City Credit Union Texas 60 2.50%
Cove Federal Credit Union Kentucky 60 2.50%
Kemba Credit Union Ohio, Indiana, Kentucky 60 2.50%
Patelco Credit Union California 60 2.50%
Ukrainian Selfreliance Federal Credit Union Pennsylvania, New Jersey 60 2.50%
Union Bank & Trust Nebraska, Kansas 60 2.50%
Vibe Credit Union Michigan 60 2.50%
Pioneer Valley Credit Union Massachusetts, New York, Connecticut, New Hampshire, Rhode Island, Vermont 57 2.57%
Marion Community Credit Union Ohio 55 2.32%

Waiting for higher returns

If you think you might qualify for any of these deals, they're worth investigating because they all pay about three times more than the current average 5-year return of 0.84% APY, according to our weekly nationwide survey of banks and thrifts.

The average return bottomed out at 0.77% APY in the summer of 2013 and gradually rose to 0.89% APY early this spring. But since May, it's wavered between 0.84% and 0.87% APY.

Rewind to February 2007, before irresponsible mortgage lending led the economy over a cliff. Back then the national average return for 5-year CDs was 4.02% APY.

But with the financial crisis throwing the economy into a tailspin, the Federal Reserve applied the brakes not only by repressing interest rates to record lows in December 2008 but by keeping them anchored there for seven years.

That historic era in the Fed's timeline officially ended last month, when it finally made a small increase of a quarter of a point in the federal funds rate.

That's what commercial banks pay to borrow money from each other through the Fed, and it's the financial lever the Fed uses to control short-term interest rates throughout the economy.

After the Fed cut that rate to essentially zero in 2008, the banks had a way to get virtually all of the money they needed for free, allowing them to slash what they paid customers for their savings.

But as the Fed funds rate moves higher, banks should become more interested in courting deposits from individual savers — and boosting their rate sheets to do so.

The Fed has indicated it will gradually push interest rates higher over the next several years.

However, it’s always unknown when and how often the Fed will act.

While it had previously suggested it aims to raise rates approximately a percentage point a year, its heavy reliance on up-to-the-minute economic data in making rate decisions means any change in the economic or global landscape can throw a wrench in the plans.

Take, for instance, the news from North Korea last week, or gas prices hitting a 12-year low this week, or today's higher-than-expected jobless claims — all of these can impact the Fed's decision on whether it's time to raise rates.

We'd hoped the first nudge from the Fed would be enough for the banks to finally begin offering savers some relief from this long, dry desert of meager rates.

But while we've seen glimmers of upward movement here and there, it seems a broader trend of increases is still ahead, and 5-year yields could certainly use the boost.