Top 6-month CD rate rebounds to 2014 high

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There's a new leader in 6-month CDs, and it's paying a nationally available rate we haven't seen since last fall.

California First National Bank boosted its return by almost a half point at the end of last week and is now offering 1.00% APY with a $5,000 minimum deposit.

The last time you could have found a similar deal was during the four weeks between late September and early October 2014, when iGObanking was paying 1.00% APY.

Indeed, the best nationally available 6-month CDs took a step back last fall, with the top rate falling from 1.00% APY down to 0.87% APY in October and then dropping again to 0.82% APY in November. It's remained there until now.

But ups and downs are to be expected as the Federal Reserve makes the transition from six years of deliberately depressed interest rates to rising, more market-driven returns.

"Rates are going up, but it's not necessarily going to be a smooth progression from one new high to the next," says Mike Sante, the managing editor of Interest.com. "There may be a step or two back, as we saw with returns on 6-month CDs this fall."

If you shop around, you may find a local special that's beating out our top national deal. Outstanding local specials on 6-month CDs aren't abundant right now, but it's worth checking out.

Two of the best deals in the country can be found in New York, where credit unions are treating their members very well.

LOMTO Federal Credit Union and Bay Ridge Federal Credit Union are paying 1.10% APY and 1.01% APY, respectively.

But you'll have to live in the Big Apple to join these credit unions and qualify for those rates.

If you can't find a similar deal where you live, then the best nationally available deals, starting with the one from CalFirst, are your best bet.

Yes, you'll earn a little less. But all of these rates are at least four times more than the average return on 6-month CDs — a paltry 0.16% APY, according to our most recent survey of major banks and thrifts.

TOP 6-MONTH CD RATES: Nationally Available Deals

Bank APY Minimum Deposit
CalFirst 1.00% $5,000
Doral Bank Direct 0.82% $500
EH National 0.80% $10,000
BAC Florida 0.77% $5,000
Giant 0.75% $2,500
GE Capital 0.70% $500
Colorado Federal Bank 0.70% $5,000
ableBanking 0.70% $1,000
First Internet Bank of Indiana 0.70% $1,000
AloStar 0.65% $1,000
Discover Bank 0.65% $2,500
Virtual Bank 0.65% $10,000
Synchrony Bank 0.65% $25,000

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 6-MONTH CD RATES: About The Banks

Bank Description URL
California First National Bank An online bank owned by the same company that runs California First Leasing Corp., which finances all sorts of high-tech business equipment. www.calfirst.com
Doral Bank Direct The online bank of Doral Bank, the leading community bank in Puerto Rico, which also has five branches in northwest Florida and two in New York City. www.doralbankdirect.com
EH National Bank Which has a single branch in Beverly Hills, California. www.ehnbank.com
BAC Florida Bank A community bank with one location in Coral Gables that sells its products nationally through My e-BAnC. www.bacflorida.com
Giant Bank The online division of Landmark Bank, which has six branches in Broward County, Florida. www.giantbank.com
GE Capital 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. gecapitalbank.com
Colorado Federal Savings Bank An online bank based in Greenwood Village, Colorado. www.coloradofederalbank.com
ableBanking The online division of Northeast Bank, which has 10 branches in Maine. www.ablebanking.com
First Internet Bank of Indiana An online bank located in Indianapolis. www.firstib.com
AloStar Bank of Commerce An online bank based in Birmingham, Alabama, formerly known as Nexity Bank. retail.alostarbank.com
Discover Bank An online bank owned by the credit card company. www.discover.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
Synchrony Bank The other bank that's a subsidiary of GE Capital Corp. www.myoptimizerplus.com

Over the past several decades, savers could usually count on earning something like 2% or 3% on a 6-month CD.

But 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 yanking money out of CDs, with those deposits falling $1.45 trillion in early 2009 to just over $500 billion today.

One measure of how little savers are being paid is the Cost of Funds Index compiled by the Federal Home Loan Bank of San Francisco. It asks banks in California, Arizona and Nevada how much they’re actually paying for deposits.

The index hit a record low of 0.663% in September, before rebounding slightly the last two months. It still sat at only 0.686% in November.

Back in 2008, before the Feds lowered the federal funds rate to zero, it was four times more — 2.757%.

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Over the past six years the Fed’s rate-setting committee regularly issued statements saying it expected to keep interest rates near zero for “a considerable time,” which economists took to mean at least six months.

In December, the central bankers added additional language to the statement, saying they could be “patient” when it comes to raising rates.

At a news conference, Fed Chair Janet Yellen said “patient” meant at least two committee meetings — or less than six months.

When the Fed's rate-setting committee met last week, it continued to say it could be "patient" but dropped "considerable time" from its statement.

That was widely interpreted as a signal that the central bank remains on track to begin raising the federal funds rate in midsummer or early fall.

Expectations are that once it begins increasing rates, the Fed will boost them a quarter of a point at each of the eight meetings it holds per year.

An official survey taken in December found that 15 of the Fed’s 17 governors thought the fed funds rate would be raised sometime in 2015.

The majority expected it to be just over 1% by the end of the year and reach a target rate of 3.625% by the end of 2017.

If that turns out to be the case, savers can expect the average return on 6-month CDs to reach something like 1% to 1.5% by the end of 2015 and 2% by the end of 2016.

Contributing editor Darci Swisher contributed to this report.