Top CD Rate Steady at 3.31% APY - Savings and CD Averages Flat

Savings and CD rates were flat last week with both average rates and top rates hardly moving at all.

Savings Rates

Average savings rates remained exactly the same as the previous week at 1.36% APY. The top rates also remained the same with Southern Community Bank's Ready Saver 2% APY Savings Account leading the pack of non-promo rates. For promotional rates, Everbank remains on top with their 3-month introductory bonus rate of 2.25% APY. After the three-month period, the rate drops down to 1.26% APY for a blended one year APY of 1.51% APY. Banks that dropped their rates include:

CD Rates

The average 1-year CD remained steady at 1.61% APY. First City Bank continued to hold the top spot with a 1.80% APY CD. First City Bank is in bad financial shape and has been operating under a FDIC Cease and Desist Order since 10/09. Tennessee Commerce Bank maintained the second spot at 1.70% APY.

The average 3-year CD rate also remained steady at 2.47% APY. Like last week, the top spot is occupied by USAA Federal Savings Bank, which requires a minimum deposit of $175,000. The next highest rate is Acacia Federal Savings at 2.65% APY and a $500 minimum deposit.

The average 5-year CD rate is the only one that changed at all from the previous week. It rose a miniscule 1 basis point from 3.16% APY to 3.17% APY.

USAA has the top rate at 3.31% APY. Everbank continues to have the second highest rate at 3.30% APY. versus the 3.39% APY it was offering last week.

Which Direction Interest Rates?

The prevailing wisdom is that interest rates will be heading higher sometime in the near-term so it's better to invest in short-term CDs or keep cash liquid with money markets and savings rates. But as an article in Bloomberg points out, there is no evidence of inflation on the horizon and if anything, deflation is a bigger concern.

"Demand for U.S. government bonds is increasing. On average, the Treasury received $3.21 in bids for each dollar sold at 10- year auctions this year, compared with $2.63 in 2009 and $2.41 from 2004 through 2008, according to data compiled by Bloomberg.

“Part of what’s frustrated bond vigilantes has been that economic data has ratified the notion of modest growth and continued declining inflation,” said Wan-Chong Kung, a money manager who helps oversee $89 billion at FAF Advisors in Minneapolis, the asset-management arm of U.S. Bancorp. "

Deflation or very low inflation means the Fed can keep rates low for an extended period of time. As the chart below shows, the spread between 1 year and 5-year CDs is at a 2 year high, with a 5-year CD paying 1.50% more per year. The 3.17% APY average yield of a 5-year CD may look pretty good if rates don't budge much in the next couple of years.