bank rates

New Leaders Pay Less On 2- & 3-Year CDs

New leaders are paying lower returns on 24- and 36-month certificates of deposit today, and iGObanking is to blame.

The online division of Flushing Bank reduced what had been the best nationally available 36-month CD rate by a quarter of a percentage point and the top 24-month rate by three-tenths of a point.

This is the second blow for the 36-month term in a matter of days.

Two banks had co-led the term with a 1.70% APY return until EverBank cut its 3-year CD rate last Friday.

Today, the top 36-month deal on our CD Rates Leaderboard is 1.50% APY – the exact same yield that led the term until last November when iGObanking debuted its 1.70% APY.

The new leader is Nationwide Bank, the online bank owned by Nationwide Mutual Insurance, which has been paying the same 1.50% APY since October.

The top 24-month CD rate has now dropped from 1.40% APY to 1.35% APY.

That’s the second blow for the term in 2015, and not the most significant.

Citizens State Bank of Florida was paying 1.55% APY for 24-month CDs when it stopped selling its certificates of deposit nationally.

CIT Bank now leads the 24-term with one of its RampUp Plus CDs.

With a $25,000 minimum deposit, the online consumer bank of CIT Group Inc., which offers financing to small and midsize companies, allows you to both raise the rate and add to your deposit once during the term.

What’s going on here?

The Federal Reserve was widely expected to reverse its six-year old policy of holding interest rates at record lows by mid-2015.

And it still could do that.

But we expected to get a clear signal of the Fed’s intentions when its rate-setting committee met in December.

It didn’t happen. The Federal Open Markets Committee continued to say that it would keep rates where they are for a “considerable time.”

That’s sort of banking code for we won’t touch rates for at least six months.

A few days ago, Chicago Fed President Charles Evans, a voting member of that committee, went on CNBC to say he didn’t think rates should be raised until 2016.

What is the banking industry to make of that?

Over the last six months of 2014, all of the statements emanating from the Fed indicated it would begin pushing interest rates up this year, probably in June or July.

That created some pressure on the banks to begin raising the returns on CDs and savings accounts – or at least not to cut them any further – to attract investors and rebuild their deposit base.

That’s why we saw a small but steady increase in the top nationally available rates on certificates of deposit – first on 5-year CDs, then on 3- and 2-year CDs.

Now, however, the Fed seems to be hesitating.

While the U.S. economy is growing, wages are still stagnant and inflation remains well below the Fed’s 2% target.

Continuing economic troubles in other parts of the world – particularly Europe, which has yet to mount a sustained recovery from the recession – may also have played a role in the Fed’s caution.

As a result, it seems banks are starting the year by cutting deposit rates, and probably postponing planned increases, until they get a clearer picture of where the nation’s central bank is headed.

The next big moment will come when the Fed’s rate-setting committee meets again on Jan. 29.

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