We could see higher CD rates in 2014 if the strong job numbers we saw in April’s employment report continue in the coming months. Higher monthly job creations and a lower unemployment rate will force the Federal Open Market Committee (FOMC) to increase the federal funds rate. A higher federal funds rate will force banks and credit unions to increase CD rates.
Long term CD rates have already started moving higher as financial institutions try to get ahead of the curve and lock savers in with low rates. Don’t be enticed to lock into a higher long term rate right now, you’ll regret the move in the next couple of years when rates move higher.
Average 2 year bank CD increased to 1.06 percent this week, up from the previous week’s average 2 year CD rate of 1.03 percent. 5 year CD rates are also higher this week averaging 1.72 percent, up 13 basis points from last week’s average 5 year rate of 1.59 percent. 1 Year CD rates were lower this week averaging 0.87 percent, down from last week’s average 1 year rate of 0.90 percent.
The best CD rates in our 1 year certificates of deposit rate database remain unchanged at 1.06 percent with an APY of 1.07 percent. Virtual Bank is offering that rate and yield on deposits of $10,000 or more. If you don’t have $10k to invest in a CD account, we have other banks offering CD rates just below Virtual Bank’s rate with a much lower minimum deposit.
Listed below are the best CD rates on 1 year certificates of deposit. We recommend staying invested in shorter term CDs because CD rates will be increasing sometime in the next 12 to 18 months.
Best 1 Year CD Rates
Heading into the final month of 2013, we close out another year of dismally low CD rates. Until this past month, it seemed that bank CD rates and all other deposit rates would start increasing next year when the Federal Reserve increased the federal funds.
Find Current Rates Here: Best CD Rates
Since December 2012, the Federal Open Market Committee (FOMC), has stated time and again that they would keep the fed funds rate near zero percent until the unemployment rate falls below 6.5 percent. This past month, the Fed has started backing off of that policy statement so there’s no telling when they will increase the fed funds rate and as a result, when CD rates will move higher.
Federal Reserve Backs Off 6.5 Percent Unemployment Rate Threshold
Fed Vice Chair Janet Yellen, who is also the nominee to succeed the current Fed Chairman Ben Bernanke, said the Fed’s policy was likely to stay loose (meaning a zero percent fed funds rate) “long after” one of the thresholds is crossed.
Ben Bernanke also hinted at a change in policy, “It is also important to note that the thresholds are not triggers.” Bernanke recently stated that rates could stay at rock bottom “well after” the 6.5 percent unemployment threshold was crossed. In the past year, Janet Yellen has suggested waiting until the unemployment rate falls to 5.5 percent before increasing the fed funds rate. Now it appears the Fed doesn’t want to commit to a set unemployment rate to increase the fed funds rate.
When Will the Fed Increase the Federal Funds Rate?
Now that the 6.5 percent unemployment rate isn’t the threshold that will send rates higher, when will rates increase? Rates will move higher either when there is “full employment” (an unemployment rate of 5.5 percent), or a higher inflation rate. The latter is less likely since deflation has been a big concern over the past several years and the current inflation rate is at a mere 1.7 percent.
If the long term outlook for inflation does move above the Fed’s 2 percent target, interest rates would move higher. The Fed would have to increase the fed funds rate quickly to stay ahead of the inflation curve. With the current rate near zero percent, the increases would be sharp and fast.
Just to get to a more neutral point where the Fed isn’t stimulating the economy or slowing growth, the fed funds rate would have to be between 2 and 3 percent.
1 Year CD Rates Will Increase above 3.00 Percent Within a Year
Fast forward to the fourth quarter of 2014 and hopefully the unemployment rate will be closer to 5.5 percent and inflation will be higher than current levels. This would mean 1 year CD rates will be above 3.00 percent, which is considerably higher than current rates. Right now, the highest 1 year CD rates in our database are at 1.04 percent with an APY of 1.05 percent.
If you have certificates of deposit maturing, don’t renew into new CD account terms longer than 1 year. With rates expected to finally start moving higher by the end of 2014, you wouldn’t want to lock into a longer term CD.
Make sure to stay on top of the maturity dates of your CD accounts so your bank doesn’t automatically roll your funds back into a new CD. This is especially important if you have an account of 1 year or more maturing because your money will end up back in a new CD with the same term.
As kids head back to school and we head into fall, short term CD rates have barely changed while the best CD rates on long term certificates of deposit move higher. Long term rates are moving higher because long term bond rates are moving higher. In fact, long term bond rates have been surging higher all summer.
10 year bond yields moved higher the past several months on fears the Federal Reserve will wind down the current round of quantitative easing (QE3). Rates have moved much higher even though the Fed hasn’t actually announced any changes to their buying $40 billion a month in mortgage-backed securities (MBS) and $45 billion a month in long term bonds.
10 Year Bond Yields Double While 5 Year CD Rates Increase Only 0.50%
Rates on 10 year bonds moved from around 1.60 percent four months ago to this morning’s rate of 2.89 percent. While long term 10 year bond rates have almost doubled, the highest CD rates on 5 year certificates of deposit are up about .50 percent. Since bank CD rates usually trail bond rates, we will continue to see CD rates move higher in the coming months.
Long term CD rates will catch up with the increase in long bond rates but if the FOMC does slow their purchases, rates will move even higher. Any announcement of winding down QE3 by the FOMC, which meets next week, will send 10 year bond rates into the 3.25 percent to 3.50 percent range.
Higher CD Rates on Long Term CD Accounts at the End of 2013
Long term CD rates which have already moved higher will continue moving higher if the FOMC starts winding down QE3. This will add additional pressure to banks to increase long term CD rates in order to compete with long term bond yields.
A 10 year bond rate of 3.50 percent will probably mean some banks may move 5 year CD rates as high as 2.50 to 2.75 percent. Right now the highest CD rates on 5 year CD accounts are around 2.00 percent.
We probably won’t see 5 year rates increase to those levels until the end of 2013 because of the lag time between bond rates and CD rates. Seeing 5 year rates nearing 3 percent will be nice since we have all suffered with the lowest rates for years now.
Last Time 5 Year CD Rates Averaged Above 2.00 Percent Was Back in 2009
The FDIC’s national average 5 year CD rate this week is at 0.74 percent with a rate cap of 1.49 percent. The last time you could find the majority of banks offering 5 year rates above 2.00 percent was over 4 years ago. The FDIC’s average 5 year CD rate at 2.23 percent with the rate cap at 2.98 percent was back in May 2009.
Stay Liquid in Short Term CDs, Savings Accounts, and Money Market Accounts
Long term rates are increasing right now but I still wouldn’t lock in a long term CD rate. In just a few years, 5 year rates will be back around 4 percent to 5 percent so why lock in 2.00 percent right now? A better bet is to stay liquid in a savings account or money market account.
You can also invest in short term certificates of deposit to earn a slight higher rate over a savings account or money market account. The best CD rates on 1 year certificates of deposit are just north of 1.00 percent while the best savings rates and money market rates are at 1.00 percent or slightly below.
For many years now, certificate of deposit (CD) rates have fallen to record lows as the Federal Reserve has kept interest rates near record lows. If you thought bank CD rates would increase along with the surge we have seen in bond yields and mortgage rates, you’ll be surprised to see that isn’t the case.
CD rates remain near historical lows despite the fact that 30 year mortgage rates have increased from 3.50 percent on average to 4.50 percent and 10 year bond yields have increased from 1.62 percent to 2.70 percent the past month. Unfortunately, the increase in bond yields and mortgage rates won’t cross over to CD rates any time soon.
We probably won’t see any increase in CD interest rates until at least 2015 at the earliest and any significant increase in rates probably won’t happen until 2016. Last month, the average CD rate on 12 month certificates of deposit was 0.66 percent. This month the average 12 month rate is higher but only averaging 0.70 percent.
An increase of only 0.04 percent won’t help increase the income of seniors who rely on interest income for living expenses. Retirees’ income has been squeezed for years now as interest rates have fallen. Back in 2008, you could find CD rates at banks for 1 year CDs around 5.00 percent.
These days the best CD rates for 1 year CD accounts are just over 1.00 percent and there are only a handful of banks offering 1 year rates above 1.00 percent. Interest rates on all CD accounts are so low, investors in CDs are not even keeping up with the pace of inflation. The past 12 months the Consumer Price Index (CPI), the governments measure of inflation at the consumer level, has increased 1.7 percent.
You can see how investing in the highest CD rates available for 1 year CD accounts doesn’t even keep up with the pace of inflation. Even going out longer term you still won’t be able to keep up with inflation. The national average 2 year CD rate is at 0.84 percent and the national average 5 year CD rate is at 1.33 percent.
Granted, there are a few banks offering 5 year CD rates that are higher than the rate of inflation but their rates are marginally higher. The best CD rate on Monitor Bank Rate’s 5 year rate table this week is at 2.03 percent with an APY of 2.05 percent, 0.35 percent higher than the current inflation rate.
There are a couple of reasons that bank CD rates and credit union CD rates won’t be moving higher any time soon. The federal funds rate has been just above zero percent and the Federal Reserve doesn’t plan on increasing the rate until the nation’s unemployment rate falls below 6.5 percent, which the Fed believes will happen sometime in 2015.
The other factor keeping interest rates low on all deposit accounts is that banks don’t need money. Since the financial crisis, banks had to improve their balance sheets to be able to withstand another crisis. Banks are now flush with cash and are not lending as much as they used to, so there is no need to raise cash by increasing deposit rates.
The best course of action to take until interest rates increase is to stay invested in certificates of deposit of 1 to 2 years. That way you can take advantage of higher CD rates when they finally do arrive. The other alternative is to make riskier investments but as you know, you are risking your principal with those investments.
The Palladian PrivateBank is new to our rate table and is already offering some of the best CD rates available. Palladian PrivateBank is a division of The PrivateBank and Trust Company. Both the parent company and the division have deposits insured by the FDIC for the maximum amount allowed by law under FDIC Certificate number 33306.
PrivateBank and Trust Company was established on February 6, 1991 and the bank has it’s headquarters in Chicago, Illinois. Palladian PrivateBank is offering three different certificate of deposit terms, all with competitive CD rates and well above the national average rates available. Probably the best CD rate for the CD term at the bank is on their 12 month certificate of deposit
The Palladian PrivateBank’s Current CD Rates
The Palladian PrivateBank’s CD rate on 12 month certificates of deposit is at 1.00 percent with an APY of 1.00 percent. While the bank’s 12 month CD rate isn’t the best 12 month rate in our database, the 1.00 percent rate gives it the second highest rate. The highest 12 month CD rate in our database right now is from GE Capital Retail Bank at 1.04 percent with an APY of 1.05 percent.
The current national average 12 month CD rate is slightly more than half both these bank’s rates. The current national average 12 month CD rate this week is at 0.67 percent. Both banks are also offering their 12 month rate at almost five times the FDIC national average of 0.21 percent.
The Palladian PrivateBank’s 18 month CD rate is currently at 1.05 percent with an APY of 1.05 percent. This bank’s 18 month rate is the number 1 rate in our 18 month rate database right now.
24 month CD rates offered by The Palladian PrivateBank is also at the top of our 24 month rate list. The bank’s current 2 year CD rate is at 1.10 percent with an APY of 1.10 percent. The bank is tied with the best 2 year CD rate along with Alostar Bank and My e-BAnC.
You can compare The Palladian PrivateBank’s rates along with other CD rates at banks by searching our database here: CDRates.MonitorBankRates.com.
After 5 years of declining CD rates we might actually see higher CD rates in 2014. Several things have to come to pass in order for interest rates to increase next year but they are looking more and more likely to happen. Of course the biggest part of the equation is the economy and the pace of economic growth.
GDP growth the past year has been inconsistent at times with the fastest pace of growth at 4.1 percent in the first quarter of 2012 and the slowest rate of growth at 0.4 percent in the fourth quarter of 2012. First quarter 2013 growth snapped back to 2.5 percent but growth expectations for the entire 2013 is at 1.6 percent, according to The Conference Board’s Global Economic Outlook 2013, January 2013 update.
Estimates for GDP growth will probably be revised higher throughout 2013, and the quicker the pace of growth the more likely bank CD rates will move higher sooner than later. Long term bond yields have already moved much higher the last three weeks as the markets sense an end to the Federal Reserve’s loose monetary policies.
The Federal Reserve has been on a quest to drive long term interest rates down to spur economic growth. By keeping the federal funds rate just above zero percent and purchasing mortgage-backed securities and long term bonds, the Fed has succeed in driving interest rates to record lows. Mortgage rates, bond yields, savings rates, money market rates and CD rates have all hit record lows the past year.
30 year mortgage rates hit record lows of 3.27 percent in 2013 and 30 year bond yields hit a record low of 2.53 percent in 2012. Shorter term interest rates have also been driven to record lows by the Fed. Average 5 year CD rates at banks are under 2.00 percent and the highest CD rates on 1 year certificates of deposit are just above 1.00 percent.
The Fed’s purchasing of long term bonds and mortgage backed securities is likely to end sometime late in 2013 if economic conditions continue to improve. The Fed has also stated that they plan to increase the fed funds rate when the unemployment rate falls below 6.5 percent. The unemployment rate for April fell 0.1 percent to 7.5 percent, only 1 percent higher than the point at which the Fed will increase the fed funds rate.
While the Fed purchasing will stop in 2013, the unemployment rate won’t fall to 6.5 percent until sometime in 2014. We will probably see a rate at that level in the second quarter of 2014. At that point, the Fed will increase the fed funds rate to 0.50 percent or even 1.00 percent. A fed funds rate at 1.00 percent will mean 1 year CD rates will move to the 1.75 percent to 2.00 percent range, a nice increase from the highest rates right now of 1.04 percent.
You can find the best national CD rates by searching our rate tables here: cdrates.monitorbankrates.com.
Average bank CD rates on 2 year and 5 year certificates of deposit were lower this week while 1 year CD rates remain unchanged. 1 year CD rates at banks are averaging 0.63 percent this week but you can find many banks offering 1 year rates well above the average. The best CD rates in our 1 year CD rate database are at 1.04 percent with an APY of 1.05 percent. The bank offering that rate and yield is GE Capital Retail Bank.
The Federal Deposit Insurance Corporation (FDIC) has average 1 year CD interest rates even lower than the average of 0.63 percent. In this week’s National Rates and Rates Cap Survey released by the FDIC, average 1 year rates are at 0.22 percent – less than one fourth the best rate in our database. Average jumbo CD rates in the FDIC survey this week are not much higher, averaging 0.23 percent.
Average 2 year rates declined to 0.65 percent this week, down from last week’s average 2 year rate of 0.69 percent. The FDIC has average 2 year rates at 0.35 percent, down from last week’s average of 0.37 percent. The highest CD rates on 2 year certificate of deposit in our database are almost double the average at 1.15 percent with an APY of 1.16 percent. The bank offering the best 2 year rate and yield this week is Virtual Bank.
5 year CD interest rates are averaging 1.21 percent, a decline from last week’s average 5 year rate of 1.25 percent. Average 5 year rates in the FDIC survey are at 0.77 percent, a decline from last week’s average 5 year rate of 0.79 percent. The best 5 year rates in our database are from The National Republic Bank of Chicago at 1.85 percent with an APY of 1.87 percent.
Below is a list of the top CD rates for March 27, 2013:
Top 1 Year Rates and Yields
Top 2 Year Rates and Yields
Top 5 Year Rates and Yields
Over the past several years the Federal Open Market Committee (FOMC) has driven bond yields, CD rates, mortgage rates and all interest rates down to record lows. The FOMC has done this by keeping the federal funds rate near zero percent since late 2008, bought long term U.S. Treasuries and mortgage-backed securities.
The FOMC’s policies in recent years have been unprecedented and has infuriated many who believed the policies were fanning inflation. The inflation hawks have quieted down after several years of screaming about the FOMC fanning inflation and creating market bubbles in financial assets. I could see why many are afraid of another bubble after the stock market bubble of the late 1990’s and the real estate bubble in the 2000’s.
Could the naysayers be right about inflation? Probably not, since there is still so much “slack in labor and product markets,” Fed-speak for high numbers of unemployed people and low factory utilization rates. The unemployment rate will fall from current levels between now and 2014 but not to the point of causing high inflation.
Beside keeping the fed funds rate near zero percent, the Federal Reserve has also been buying interest-bearing assets to drive interest rates lower – to the tune of $85 billion a month recently. The Fed has bought so much they have a balance sheet of these assets totaling over $3 trillion dollars. One bright point everyone can agree about the Fed’s actions is that they have made hundreds of billions of dollars over the past several years, helping lower the federal deficit.
Eventually the fed will have to sell these assets and unfortunately, it will sell U.S. Treasuries at a loss to unwind their balance sheet. Another negative when the fed starts selling Treasuries is their actions will send long term bond yields higher. 10 year Treasury yields have already moved higher from a record low of 1.40 percent in July 2012 to just under 2.00 percent today.
Higher Treasury yields are welcome news for investors who buy Treasuries and hold them until maturity. Higher bond yields will eventually send interest rates higher as well. This is also welcome news for investors and especially retirees who rely on interest income in retirement. Right now the best CD rates on 1 year certificates of deposit are just above 1.00 percent.
Longer term certificates of deposit don’t pay much higher of an interest rate than shorter term certificates of deposit. Currently, the highest CD rates on 5 year certificates of deposit are just below 2.00 percent. Not much better than 1 year rates. Thankfully there is hope for higher interest rates in the future.
We recently found one of the best CD rates available at 1.50 percent APY on a 12 month certificate of deposit. Melrose Cooperative Bank is offering their 12 month 50/50 certificate of deposit at 1.49 percent with an APY of 1.50 percent. Average CD rates on 12 month certificates of deposit at 0.59 percent this week, considerably less than Melrose’s 12 month CD rate.
What is a 50/50 certificate of deposit? Melrose’s 50/50 CD gives the depositor the ability to add or withdraw up to 50 percent of the initial deposit without incurring any penalties or fees. On the bank’s website they point out that the odds of rates going up or down is 50/50 so they are giving you the ability to either add or remove funds after opening the account.
Only “new money” can earn the rate and yield – money not already on deposit at Melrose. There is a $1,000 minimum balance to open a CD and a maximum initial deposit is $100,000. The minimum balance to earn the APY is $500. Interest earned on the account is compounded and credited monthly.
Unfortunately, not everyone that lives in the United States can take advantage of this deal. You must live near this Massachusetts based bank. On the bank’s website they say the “Tax Identification Number owner must reside in Melrose or its abutting communities: Saugus, Wakefield, Malden and Stoneham.”
If you don’t live in one of these communities, you can use our CD rate database to find the highest CD rates in your area.
The best 1 year bank CD rates were unchanged this week as the fourth quarter GDP advance estimate report was released, showing a slowing economy at the end of 2012. The best CD rates in our 1 year certificate of deposit rate database is at 1.04 percent and average 1 year rates remain increased three basis points from 0.69 percent to 0.72 percent.
The first estimate for fourth quarter GDP growth actually showed the economy contracted 0.1 percent in the final three months of 2012. While the report was a surprise, the news isn’t all that bad because the contraction was due to two factors, a big drop in government defense spending and lower business inventory growth.
First quarter 2012 GDP is expected to show growth of around 2.00 percent, thus avoiding back-to-back contractions in the economy, which would technically mean a recession. Another major economic report released last week was January’s unemployment report, which showed 157,000 jobs were created and the unemployment rate ticked up from 7.8 percent to 7.9 percent.
The headline jobs number of 157,000 jobs was slightly weaker than expected but the news is better for jobs created in 2012. Revisions to the payroll survey for November and December 2012 added 127,000 jobs. The average number of jobs created for the final quarter of 2012 was 200,000 per month – a lot better than previously thought.
Stronger growth and lower unemployment might mean higher interest rates in 2013. When the unemployment rate drops to 6.5 percent or below, the Federal Open Market Committee will pull back on stimulating the economy. This will mean a higher federal funds rate and in turn, CD rates at banks will move higher.
If this scenario plays out in 2013, it will be welcome news because the Fed says they plan to keep the Federal Funds Rate at near zero percent until mid-2015, two years sooner than expected. After almost 5 years of watching interest rates on all CD terms falling to record lows, it would be nice to report on higher CD rates.
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