The Fed today cut the discount rate to 5.75% sending the message that it to is worried about credit markets. The discount rate is the rate that commercial banks and other depository institutions are charged on loans from regional Federal Reserve offices. In general, banks try to limit their use of Federal Funds because it is generally more expensive than obtaining cash through customer deposits or other means.

Interestingly, I noticed on BestCashCow's rate tables that several large mortgage lenders (Countrywide) have significantly increased the rate they are paying on CDs and savings accounts in an attempt to bring in depositor money. Notice that even these top rates are below the Fed Discount rate.

Pentagon Federal Credit Union has a history of offering great rates on CDs for terms of 3 to 7 years. PenFed calls thse CDs Money Market Certificates, but they're just like any bank CD with a fixed rate for a specific term.

They rarely offer competitive rates for CDs with terms under 3 years, but for a few months each year, they have these great deals on long-term CDs. Early in 2007, they were offering 6.25% APY on these CDs.

Since the start of October 2008, PenFed has been offering 5.00% APY for these CDs. It's not as good as 2007, but it's still very competitive especially for the 36-month term. These probably won't last past this November.

The CDs have a minimum deposit of $1,000. They're also available as Coverdell Education Savings Certificates and as IRA Certificates. You can open the CDs online and fund them using an electronic ACH transfer from your current bank account.

In addition to high CD rates, PenFed has several other competitive banking products including a cash back Visa credit card with 5% cash back for gas purchases and auto loans with very low rates.

If you don't qualify based on military, employer or family, you can become eligible by joining the National Military Family Association (NMFA). Refer to PenFed's Joining Made Easy Page for details.

E-Loan today announced that they are raising their CD rates. In all rate comparisons from 3 month to 5 years, the bank now offers one of the best CD rates available (although in no category do the offer the leading rate.)

The bank, however, has also started a new promotion, on 18 month and 5 year CDs, which when taken into account cause it to be the best CD rate in those two categories. The promotion offers an additional $250 on an 18 month CD with a deposit of over $50,000 and an additional $500 on a 5 year CD with a deposit over $50,000. The promotion expires on September 30, 2008.

The promotion is applied in terms of an interest bump-up so that $50,000 deposited in 18-month CD would yield approximately 4.70% and a 5 year CD approximately 5.30%. One cautionary tale here is that the language is deliberately unclear whether the interest bump up would apply to the full amount deposited if over $50,000, and customer service was unable to answer the question when I called them.