Another week, another drop in CD rates. As the Fed wishes, so it gets. All terms of CD rates were down and some of the top rates fell from their perch this week as the trend was down, down, down. As we've seen lately, longer-term (5-year) CDs fell less than their shorter-term cousins and as a result the spread between 5-year and 1-year CDs hit a new record high.

The average 1-year CD dropped by 3 basis points from 1.39% APY to 1.36% APY. The top rate also dropped from 2% last week to 1.80% APY from First City Bank. First City Bank is in bad financial shape and has been operating under a FDIC Cease and Desist Order since 10/09. Southern Commerce Bank has the next highest rate at 1.75% APY but as the BestCashCow rate tables show, it also has some financial problems.

If you stay below FDIC limits you will not lose your principle, but if a bank goes under the FDIC or the bank that assumes deposits has the ability to reset these deposit rates. Thus, a high rate CD can be reset to a lower rate. The assuming bank does provide customers with the option of withdawing funds in that case. With rates so low though, a rate reset wouldn't be devestating. It's depositors who opened CDs several years ago when rates were above 5% who really suffer when the bank fails and rates are reset down to 2% or lower.

The average 3-year CD rate was the big loser this week, falling 6 basis points from 2.58% APY to 2.52% APY. USAA Federal Bank Savings Bank cut their rate, leaving Bank United in the top spot with a 2.75% APY CD. Bank United is not yet rated because it is a relatively new banking entity, having emerged from the ashes of the old, failed BankUnited. The new bank has been recapitalized and appears to be in much better financial shape than it predecessor.

The average 5-year CD dropped by only 1 basis points to 3.19% APY. The top rates have also remained steady or even increased slightly..

USAA continues to have the top 5-year CD rate at 3.41% APY but it does have that $175,000 minimum balance. Everbank has the second highest rate at 3.39% APY up from 3.33% APY last week. One thing to note about Everbank is their penalty for breaking a CD early. According to their terms:

"This penalty will be equal to one-fourth of the total interest that would have been earned on the principal balance of the account if funds had not been withdrawn prior to the maturity date." On a 5-year, 60 month CD, that's 15 months of interest.

The spread between average savings rates and 3-year CD rates has trended down over the past four weeks, mainly because 3-year CDs have dropped faster than savings account and money market rates. The opposite is happening with 5-year CDs, which have remained firm. The spread between 1-year CDs and 5-year CDs hit another record high last week. You can now earn on average 1.55% APY more in a high yield 5-year CD than a high yield 1-year.

The mainstream press is finally starting to discuss something I've been exploring for the past couple of months - what if interest rates aren't going up as almost everyone expects?

Fortune published an article on March 15 entitled - What if interest rates don't rise? The article discusses the possibility that rates may stay low for years and then compares the US situation to Japan.

"Even if it doesn't come to that, Japan's lost decades show that low-rate policies are far from foolproof. Japanese 10-year notes recently yielded 1.35% and haven't been above 2.15% in more than a decade, Simons noted."

In February I took a look at Japan's interest rate history in the face of mounting public debt (Could Interest Rates Stay Low Despite Growing US Debt - Look at Japan). Japanese interest rates have come down over the past twenty years even as public debt has surged to over 120% of GDP. By comparison, US debt as a share of GDP is currently around 80%.

Yet, despite this rising debt, "Japan’s experience shows that “printing money” doesn’t always lead to an inevitable increase in interest rates. Ten-year US Treasuries at 3.7%, savings accounts at 1.5%, and 30-year mortgages at 5% could be the new norm instead of a low-point before rates quickly bounce back up."

Are we in a new low-rate environment or will rates go up? Is this recovery for real are we in a Japanese style deflationary environment?

The answers will determine the direction of interest rates and whether a 5-year CD paying 3.3% APY is currently a good place to park money? If you believe rates are going to rise, then it's not. If you think rates might stay low for at least the next five years then it might be the best you'll be able to do.

Compare 5-year CD rates here.

After last week's big drop, CD rates were flat this week. The spread between 5-year and 1-year CDs hit a new record high.

The average 1-year CD rate followed last week's 12 basis point drop with a much smaller 3 basis point drop as rates fell from 1.71% APY to 1.68% APY. 1-year rates are not at their lowest point since we began tracking. Despite the decline in the average, the top rate remains a 2% APY CD from First City Bank. First City is offering a top rate but be sure to stay under FDIC insurance limits - it is rated as 0 stars according to Bauer Financial for its safety and soundness.

The average 3-year CD rate remained at 2.57% APY. USAA Federal Bank continues to have the top rate with a 2.81% APY 3-year CD. The minimum deposit for that rate is $175,000. While you need a military connection to quality for their loan and insurance products, you do not need one to take advantage of USAA deposit products. In the banking world, USAA is highly regarded for its banking products and services. If you don't have $175,000 to deposit, then Bank United is offering a 2.75% APY 3-year CD with a minimum deposit of only $5,000.

The average 5-year CD rose 1 basis points to 3.20% APY after plummeting 13 basis points last week.

USAA continued to have the top 5-year CD rate at 3.41% APY but it does have that $175,000 minimum balance.. Everbank has the second highest rate at 3.33% APY with a minium balance of $2,000. One thing to note about Everbank is their penalty for breaking a CD early. According to their terms:

"This penalty will be equal to one-fourth of the total interest that would have been earned on the principal balance of the account if funds had not been withdrawn prior to the maturity date." On a 5-year, 60 month CD, that's 15 months of interest which is a little higher than others in the market (and we try to avoid penalties over 1 year's interest on 5-year CDs).

The spread between savings rates and CD rates has come down slightly over the past couple of weeks, although it is still very high by historical standards. That means a longer-term CD is paying more versus a savings account than it has in the past. The spread between 1-year and 5-year CDs hit a new record high this week. You can now earn on average 1.52% APY more in a high yield 5-year CD than a high yield 1-year.