bank rates

Top Returns Move Up On Short-Term CDs, Down On Longer Terms

If we were unsure we were seeing a pattern, today’s CD news appears to doubly validate our observation that banks are hedging against long-term rate commitments while favoring short maturities.

In a big morning, three leads among the nationally available bank certificates on our CD Rates Leaderboard saw changes today – one for the better, but two for the worse.

Both hits came from E-Loan, which has dropped its rates repeatedly since mid-January after holding the top spot across five terms for the better part of six months.

This morning, it lowered its 36-month yield, abandoning its solo lead at 1.75% APY and settling for a shared top spot with State Farm Bank at 1.70% APY.

But worse is its blow to 48-month returns. Since we started tracking national 4-year yields in August, E-Loan and others have paid 2.00% APY.

But today, no one is still paying that rate, including E-Loan, after dropping its 48-month yield to 1.85% APY this morning.

That leaves First Internet Bank of Indiana as the 4-year leader, paying a much lower top rate of 1.87% APY.

This means the top nationally available returns for 3-, 4- and 5-year certificates are all lower at this point than they were before the Federal Reserve hiked interest rates in mid-December.

It’s the exact opposite of what we had hoped would happen for savers, who have been suffering record-low returns on their deposits for years.

Fortunately, there is one bit of encouragement. As of this morning, the top return for 3-, 6- and 12-month CDs are all higher than they were before the Fed raised rates.

The last increase in that trio came today from EH National Bank, which astoundingly raised its 3-month rate from 0.50% to 0.83% APY, leaping far above yesterday’s lead of 0.55% APY.

Although we track the nation’s best 3-month CD returns, we don’t typically write about them because, well, they’ve simply been unworthy, given that a high-yield savings or money market account pays about twice as much.

But at 0.83% APY, the 3-month lead is at least approaching respectability.

It’s also the best nationally available return we’ve seen in more than four years, before the 3-month lead tanked to 0.60% in January 2012.

As we’ve been writing, the Fed had been planning to make small, gradual rate increases over the next several years.

But recent global events, the impact of rock-bottom gas prices on inflation and turmoil in the markets has everyone second guessing whether the Fed will have to pause its plan after just one increase.

With so much uncertainty swirling around when, how frequently or even whether the Fed will keep raising rates, it’s no wonder banks aren’t keen to lock in favorable long-term rates and are focusing on short-term commitments instead.

The Fed’s next meeting is March 15-16, although no one knows what its rate-setting committee will decide.

Like the rest of the world, we’ll be on the edge of our seats to find out.

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