Leading 5-year CD rates bounce back to 2.5%

White piggy banks with stacks of money and moneybag

It was virtually impossible to find a bank or credit union paying 2% APY on a 5-year CD last spring.

But over the past six months, we've seen a modest yet steady increase in the top rates being offered on these popular investments.

You'll find the best returns at community banks and credit unions that only accept deposits from nearby residents.

In New York, for example, The Bank of Utica (www.bankofutica.com), is paying savers in the central part of the state 2.50% APY. Montauk Credit Union (www.montauk-cu.com) has a similar offer for its members on the eastern tip of Long Island.

If you live near Norfolk, Va., why not take advantage of the 2.55% return from ABNB Federal Credit Union (www.abnbfcu.org)?

Click here to search Bankrate's database of CD rates to see if you can find a similar deal near you. Or check out the latest local deals on Bankaholic.com.

No luck? Then the top nationally available bank deals are your next-best bet.

Three banks -- GE Capital Retail Bank, Barclays and CIT Bank -- are paying savers in all 50 states 2.25% APY .

TOP 5-YEAR CD RATES: Nationally Available Bank Deals

Bank APY Minimum Deposit
GE Capital Retail 2.25% $25,000
CIT Bank 2.25% $1,000
Barclays 2.25% No minimum
EverBank 2.24% $1,500
iGoBanking 2.15% $1,000
GE Capital Bank 2.10% $500
Dime Savings Bank of Williamsburgh 2.10% $500
Northwest Community Bank 2.05% $1,000
State Farm Bank 2.05% $500
State Bank of India-NY 2.05% $5,000
Virtual Bank 2.02% $10,000

To qualify for this list, a bank must be FDIC-insured and 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 5-YEAR CD RATES: About The Banks

Bank Description URL
GE Capital Retail Bank One of two online banks, each with its own FDIC insurance, that are subsidiaries of GE Capital Corp., the financial services unit of the manufacturing giant. banking.gecrb.com
CIT Bank The online consumer bank of CIT Group Inc., which offers financing to small businesses and middle- market companies. www.bankoncit.com
Barclays The online American operation of the worldwide British bank with more than $2 trillion in assets. www.banking.barclaysus.com
EverBank Primarily an online bank with 14 branches in Florida. www.everbank.com
iGoBanking The online division of Flushing Savings Bank, which has 17 locations in New York. www.igobanking.com
Northwest Community Bank A community bank with six branches in Connecticut. www.nwcommunitybank.com
Dime Savings Bank of Williamsburgh Which has 25 branches in the New York City area. www.dime.com
State Farm Bank The online bank of the insurance company. www.statefarm.com
GE Capital Bank The other commercial bank that's a subsidiary of GE Capital Corp. gecapitalbank.com
State Bank of India-New York The FDIC-insured New York branch of India's largest bank, which operates independently of other U.S. branches. www.statebank.com
Virtual Bank The online division of Sabadell United Bank, which has 23 branches in Florida and is owned by Banco Sabadell, Spain's fourth-largest bank. www.virtualbank.com

Over the past several decades, determined savers could usually count on earning 5% or 6% on a 5-year CD.

But the Federal Reserve has driven short-term interest rates to record lows in an attempt to haul the economy out of the worst financial crisis and recession since the 1930s.

It's done that by drastically reducing what's called the federal funds rate, which is what commercial banks pay to borrow money from each other through the Fed.

That rate has been essentially zero since December 2008, so why would a bank pay savers for deposits when it can get pretty much all of the money it needs from the Fed, essentially for free?

As a result, the average return on 5-year CDs has fallen from 3.20% APY in late '08 to a record low of 0.80% APY today.

Last year, former Fed Chairman Ben Bernanke said the central bank would start bumping rates up when the unemployment rate hit 6.5%.

With that goal in mind, savers anxiously watched the jobless rate fall to 7.3% in August. Not quite there, but closing in.

Then Bernanke told a news conference after the Fed's rate-setting committee met on Sept. 18 that “the first increases in short-term rates might not occur until the unemployment rate is considerably below 6.5%."

Indeed, the Fed chairman said a return to market-driven rates — and a reasonable return on our savings — could be "several more years" down the road.

Several more years? Economists who had expected the bank to reverse course and start raising the fed funds rate by late 2015 were suddenly wondering if sometime in 2016 might be more realistic.

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After Janet Yellen took over as Fed chairman, she seemed to lay out a quicker route to higher rates at her first news conference in late March.

Yellen said the Fed must first wind down its campaign to drive long-term interest rates lower by purchasing billions of dollars a month in Treasury debt and mortgage-backed bonds.

That process began in January and, at the current rate of "tapering" as the Fed calls it, should wrap up sometime this fall.

Once the bond purchases end, Yellen said the Open Markets Committee would turn its attention to the fed funds rate about six months later — or perhaps as soon as April 2015 if the bond purchases end in September.

But Charles Evans, the president of the Chicago branch of the Federal Reserve, quickly sought to temper those expectations in a speech he delivered in Hong Kong on Friday.

"I currently expect that low inflation and still-high unemployment will mean that the short-term policy rate will remain near zero well into 2015," Evans said, according to a text of his remarks. By the time "the policy rate increases, it will have been near zero for about seven years."

Then Yellen walked her comments back in a Monday speech to a community development conference in Chicago.

“This extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policy makers,” Yellen said. "The scars from the Great Recession remain, and reaching our goals will take time.”

While Yellen didn't mention any specific dates, she seemed to be sending a signal that the Fed won't act until late 2015 — if then.

It seems that savvy savers should plan for at least another year-and-a-half of rock bottom interest rates before a gradual return to reasonable returns even begins.

Contributing editors Darci Swisher and Mitch Strohm contributed to this report.

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