Bank Saver Update - Top CD at 3.04% APY, Averages Dip

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We're closing in on the end of 2013 and while rates have ticked up a bit, the operative word is still "low yield" for savers. Next week I'll post my thoughts on 2014, and while I do think rates will move up a bit more, we're not looking at any kind of great thaw. The cold, harsh winter of low rates will continue.

Over the last month, we've received some encouraging economic indicators, with GDP beating expectations, holiday spending up, and unemployment down to 7%. The Fed has even hinted at withdrawing a bit from the bond market. Despite this, the rally in deposit account rates seems to have stalled.

From one month ago, 12 month average CD rates decreased by two basis point from 0.349% to 0.347% APY. Average 3 year CD rates dropped from 0.713 to .711% APY. Five year average CDs, the product showing the largest rate increases several months ago dropped form 1.079% to 1.073% APY. The bright spot? Online savings accounts which ran from 0.685% to 0.702% APY. Online savings accounts continue to hold up, having moved very little over the past two years.

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The chart below shows the trend in average rates since October 2012.

Top Rate Recap

During this period, top savings and CD rates have inched up a bit, reflecting the increase in average rates from the prior couple of months. These rates will come down if the averages continue moving lower.

  • Online Savings: My Savings Direct, EBSB Direct, and all have moved into the top rate position with a 1.00% APY online savings account. My Savings Direct has a $1 minimum balance while the other two ask for substantially more money.
  • 1 Year CD: GE Capital Bank and CIT Bank jointly hold the top spot with a 1.05% APY. Both have minimum balances of $25,000.
  • 3 Year CD: Pentagon Federal Credit Union has retains the top spot but has significantly increased its rate from 1.51% APY to 2.02% APY. This is significantly higher than the next best rate from CIT Bank at 1.40% APY.
  • 5 Year CD: Pentagon Federal Credit Union retains the top spot with its 3.04% APY CD. This is almost one percentage higher than the next best rate.
  • Rewards Checking: Hope Credit Union and Money One Federal Credit Union both have the top rewards checking rate of 3.01% APY for balances up to $10,000. Both credit unions are open to members from across the country.

It was possible in the past to find some rates on local CDs that beat the online rates. But PenFed is now head and shoulders above almost every bank out there - online or brick and mortar for the 3,4, and 5 year terms. If you don't like opening accounts online, then you can find some attractive rates by searching our comprehensive local rate database located here.

Online Saving and CD Spread

The difference between average 1 year CD rates and average online savings rates rose to a new high last week, continuing to enforce the benefit of keeping money liquid in an online savings account. On average, online savings account rates pay 0.355 percentage points more than 1 year CDs, up from 0.23 percentage points more at the beginning of last year and up from last week's previous high of 0.355% APY. In addition to paying more than 1 year CDs, online savings rates pay almost the same as 3 year CDs. Iin a rising rate environment, it makes more sense to stay liquid with an online savings account than to lock money into a low rate CD.

General rate environment

In many ways the economy appears to have turned a corner in the last couple of weeks. The government is on the eve of passing a two year budget deal that would put the threat of another shutdown in the rearview mirror - at least for two years. Unemployment has dropped to 7%, just half a percent above the level the Fed has indicated is needed to begin raising rates. The stock market continues to remain high and GDP growth came in at an annual rate of 3.6% in the third quarter - the highest level since the start of the financial crisis.

But for every give their seems to be a take. Let's take the budget deal. Yes, it is a step forward from a shutdown, but it does little to tackle the country's long-term financial problems. The drop in unemployment to 7% wasn't accomplished due to job growth, but mainly because individuals have left the labor force, either due to retirement, or because they have given up looking for a job. The latter indicating a stubborn problem in long-term unemployment. And that 3.6% growth? It came about not because of increases in consumer spending, but because of a lack of it. U.S. GDP increased because businesses stockpiled inventory. Almost 50% of the increase in GDP came from this increase in inventory. But an increase in inventory is not consumer spending, which powers the economy, it is goods and services sitting in a warehouse.

Holiday spending at least looks to grow a bit. The National Retail Federation expects holiday sales to increase 3.9 percent this year to $602.1 billion. The ten year average holiday sales growth is 3.3 percent. So, at least some of that inventory may get worked down in December. Are you buying more this year?

So if we look at the scorecard:

  • Taxes & Government: Increasing - drag on growth. Neutral
  • U.S. economic growth: Slow to moderate. Economy muddling along, not really creating jobs and not really losing them: Neutral.
  • Europe and the world: Europe leaving recession; Japan mixed growth; developed world slowing but still growing. Overall, world picture is improving. Positive
  • Technology: Gas prices at the pump coming down and plentry of natural gas for the cold winter months due to fracking and other extraction innovations. Slightly Positive.

My outlook: Going into the new year, the damage from the govenment shutdown should fade. Unless Obamacare falls off the tracks, consumer confidence should continue to tick up. Look for deposit rates to begin heading higher again soon. The Fed will increase the Federal Funds rate within the next 12 months. Savings rates will hover in the 2-3% range by the end of next year.

Savings Accounts or CDs?

The data continues to show that opening a savings account is a better bet than a 1-3 year term CD and I expect this to hold through 2013. Online savings accounts have held the line over the past year and even though CD rates have stabilized and ticked up, the premium is still not enough to jusity locking the money away. While the premium for opening a 5 year CD over a 1 year CD has increased over the past six weeks, it is still only at 0.722 versus over 1 percentage point in October 2011. In a rising rate environment, it does not make sense to tie up money for 5 years with only a 30 basis premium.

Is it worth it to go long and open a 5 year? I don't think so any more. I think the 5 year CD rates are just too low and that you'd be better off putting your "safe" money into an online savings account and waiting for rates to rise. I spoke to one banker several weeks ago who said that "no one was investing in long-term CDs." Keep your powder dry.

For money you want to keep liquid, go with online savings accounts. They offer better rates than 1-3 year CDs and athough several banks have dropped rates in the past month, they have still offered decent rate stability over the past year and a half.

Make the best of a tough savings situation in 2013

Yields may be low in 2013 but a savvy saver can boost the return with no increase in rate by rate shopping. By shopping around, a saver can earn an extra half to full percentage point. On $100,000, that's $1,000 in extra cash per year. Remember, even in today's environment, there is competition for your cash.

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Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee

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Today's Highest Online CD Rates

Bank Product Term Interest Rate (APY)
Northern Bank Direct 1-Year 5.60% APY with $500 minimum
Finworth, a division of InsBank 1-Year 5.38% APY with $50,000 minimum
TotalDirect, a division of City National Bank of Florida 1-Year 5.35% APY with $25,000 minimum
Dollar Savings Direct, a division of Emigrant Bank 3-Year 5.00% APY with $1,000 minimum
First Internet Bank of Indiana 3-Year 4.66% APY with $1,000 minimum
IncredibleBank 3-Year 4.58% APY with $1,000 minimum
First Internet Bank of Indiana 5-Year 4.55% APY with $1,000 minimum
BMO Alto, a division of Bank of Montreal Harris 5-Year 4.50% APY with no minimum
Department of Commerce 5-Year 4.34% APY with $500 minimum

See More Online CD Rates →


  • Sol

    December 18, 2013

    Fed came out with their statement today. Looks like deposit rates will be low for a looong time.

    The Fed now says it won't raise short term rates until the unemployment rate reaches 6.5% (it's now 7%) AND until inflation exceeds the target rate of 2.5%. It acknowledges that this second hurdle to jump could take quite a bit of time.

    Three and five year CDs may squirt up a bit but don't look for much relief and large gains anytime soon. May have to adjust my forecast based on this. About ready to throw in the towel and say that exceptionally low rates are here to stay for the next 2-3 years at least.

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