Savings and CD rates continued to drop last week, although the decline in average savings rates slowed to a crawl. Some of the top CD rates dropped though, effectively lowering the best rates available.

Savings Rates

Average savings rates dropped by only 1 basis point last week from 1.37% APY to 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:

• Franklin Synergy Bank falling from 1.7% APY to 1.65% APY.
• Palladian Private Bank falling from 1.55% APY to 1.5% APY
• Savings Square from 1.35% APY to 1.25% APY

CD Rates

The average 1-year CD dropped from 1.63% APY to 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. Southern Commerce Bank which last week had the second highest rates dropped its 12-month CD to 1.50% APY, moving Tennessee Commerce Bank into the second spot at 1.70% APY.

The average 3-year CD rate had the biggest drop last week, falling from 2.52% APY to 2.47% APY. The top rate also dropped from 2.75% APY to 2.65% APY. Bank United which held the top rate dropped its CD to 2.50% APY. The top spot is now 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 dropped from 3.19% APY to 3.16% APY.

The top two rates on the 5-year CD fell with USAA lowering its rate from 3.41% APY to 3.31% APY. It's still the highest rate even though it's 10 basis points lower than last week. Everbank continues to have the second highest rate at 3.30% APY versus the 3.39% APY it was offering 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of the total interest that would have been earned on the principal balance of the account if funds had not been withdrawn prior to the maturity date."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 dropped again for the sixth week in a row. To me, that constitutes a trend. Savings rates have slowed their descent while 3-year CDs have been plummeting lately. Thus, the spread has been narrowing. This is not consistent with an economy that expects to see inflation and interest rates increases anytime soon. The other spread we follow is between the 1-year CD and 5-year CD. It has remained relatively flat, dropping from 1.56 to 1.55 after hitting a record high last week of 1.56. Shorter term CDs continue to fall while longer maturity CDs have held up. It also seems that we are close to a bottom in savings and money market account rates.

Unlike two weeks ago where we saw a steep drop in CD and savings rates, rates were mostly flat over the past week.

Savings Rates

Average savings rates held their ground last week, remaining at 1.37% 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

CD Rates

The average 1-year CD remained steady at 1.37% 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. 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.

The average 3-year CD rate, which had the biggest drop two weeks ago, remained at 2.52% APY. Bank United remains 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, which has been fairly steady since the beginning of the year, held steady at 3.19% APY.

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. 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 rose slightly fro 1.14% to 1.15%. That means the average 5-year CD pays 1.15% more in interest than a savings account. The high for this spread was 1.24% in early March. The spread between 1-year CDs and 5-year CDs hit another record high last week. You can now earn on average 1.56% APY more in a high yield 5-year CD than a high yield 1-year.

In the Fed's semiannual report to Congress, Chairman Ben Bernanke reiterated that rates will stay low for an extended period. How long is an extended period? Certainly through 2010 and perhaps longer in my opinion.

Here's what Bernanke had to say in his prepared statement:

“Although the federal funds rate is likely to remain exceptionally low for an extended period, as the expansion matures, the Federal Reserve will at some point need to begin to tighten monetary conditions to prevent the development of inflationary pressures."

In other words, rates are staying rock bottom until the economy shows that it has some life. And that certainly hasn't happened recently. In his remarks, he said that much of the pick-up at the end of last year was attributed to companies repleneshing inventories and not due to an increase in demand.

“As the impetus provided by the inventory cycle is temporary, and as the fiscal support for economic growth likely will diminish later this year, a sustained recovery will depend on continued growth in private-sector final demand for goods and services,” he said.

There were a couple of very interesting and almost humorous exchanges, humorous in a pathetic way. Ron Paul, the arch-nemesis of the Fed insinuated that the Fed had helped finance the 1972 Watergate break-in as well as bankrolled Saddam Hussein. Bernanke replied:

“The specific allegations you have made are absolutely bizarre. I have no knowledge of anything remotely like what you’ve described.”

Both the allegations and the response made me chuckle.

And then I also sat and watched as Congressmen and Congresswomen botched basic economics, confusing the Discount Window with the Federal Funds Rate. One representative (a woman whose name I did not catch) kept pressing Bernanke to release the names of banks who borrowed from the Discount Window in the name of transparency. That of course, would defeat the very purpose of the Discount Window,which is to help stave off a financial panic. What bank is going to borrow if the fact they are borrowing becomes public knowledge?

It's sometimes scary to listen to the testimony and realize just how little our legislators understand how the financial system works.