Top 5-year CD rates start rebound without Fed's help
Although we're still in the same waiting-on-the-Fed holding pattern we've been stuck in all year, yields on 5-year CDs have already risen a little in 2015.
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 — this summer saw a boost in the lead rate to 2.45% APY.
And unlike the 2.50% deal Live Oak offered for four days in February, this offer from E-Loan has stuck for more than three months now, making it the best sustained lead we've seen since September 2011.
We're also aware of more than a dozen local deals that pay even better than E-Loan, earning lucky savers as much as 3.05% APY.
Those deals are certainly better than what we were seeing back in May 2013, when 5-year rates hit their recession-driven lows, with a top national yield of just 1.75%.
Perhaps the most critical player behind the bounce in 5-year CDs has been E-Loan, an online division of Popular Community Bank.
Banking experts tell us Popular Community — which operates almost 50 branches in New York, New Jersey and South Florida — is a healthy, on-the-rise bank that's enjoying robust growth in commercial lending and therefore needs to grow its deposit reserves to support those loans.
To attract deposits, E-Loan began offering the top national 1-, 2-, 3-, 4- and 5-year returns — in some cases by a margin of almost two-tenths of a percentage point — although since then it has surrendered top billing among 1-year CDs and now shares the 4-year lead.
TOP 5-YEAR CD RATES: Nationally Available Bank Deals
|First Internet Bank of Indiana||2.22%||$1,000|
|Colorado Federal Savings Bank||2.15%||$5,000|
|State Bank of India - Chicago||2.12%||$2,500|
|State Bank of India - New York||2.12%||$5,000|
|Capital One 360||2.10%||No minimum|
|Sallie Mae Bank||2.10%||$2,500|
|Salem Five Bank||2.10%||$10,000|
|State Farm Bank||2.05%||$500|
|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|
|GE Capital Bank||2.00%||$500|
|Hudson City Savings Bank||2.00%||$500|
|Gulf Coast Bank & Trust||2.00%||$2,000|
Of course, there are always some lucky savers who can out earn the top national rate by purchasing 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.
That's why smaller financial institutions promoting local deals from New York City and the Ohio River Valley to the Great Plains and desert Southwest, 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
|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%|
|General Electric Credit Union||Ohio, Indiana, Kentucky||60||2.75%|
|Deere Employees Credit Union||Illinois, Iowa||60||2.65%|
|IH Mississippi Valley Credit Union||Illinois, Iowa||60||2.63%|
|Green Mountain Credit Union||Vermont||60||2.53%|
|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%|
|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%|
|Marion Community Credit Union||Ohio||55||2.32%|
|Keystone United Methodist Federal Credit Union||Pennsylvania||55||2.25%|
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 0.85% 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 and the Fed stepped in to boost the economy with a policy of repressed interest rates — and the national average return for 5-year CDs was 4.02% APY.
While that kind of yield is hard to imagine in the rate climate we've been suffering for years now, it's a reasonable return for savers to expect when you look at rate histories before the financial crisis.
For most of this year, the expectation has been that the Fed would kick off a series of rate hikes in 2015.
But so far that hasn't happened, and there's just one rate-setting committee meeting left this year, scheduled for Dec. 15-16.
Many expect a hike will indeed come out of that meeting, but letting the 2015 window close and deferring the first increase until after the new year is also a distinct possibility.
Whether the long-awaited event occurs next month or next quarter, that's when CD rates in all terms will gradually begin improving, and 5-year yields can certainly use the boost.