3-Year CD Rates Biggest Loser - Top CD Rate Steady at 3.41% APY

Another week, another drop in CD rates. As the Fed wishes, so it gets. All terms of CD rates were down and some of the top rates fell from their perch this week as the trend was down, down, down. As we've seen lately, longer-term (5-year) CDs fell less than their shorter-term cousins and as a result the spread between 5-year and 1-year CDs hit a new record high.

The average 1-year CD dropped by 3 basis points from 1.39% APY to 1.36% APY. The top rate also dropped from 2% last week to 1.80% APY from First City Bank. 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.

If you stay below FDIC limits you will not lose your principle, but if a bank goes under the FDIC or the bank that assumes deposits has the ability to reset these deposit rates. Thus, a high rate CD can be reset to a lower rate. The assuming bank does provide customers with the option of withdawing funds in that case. With rates so low though, a rate reset wouldn't be devestating. It's depositors who opened CDs several years ago when rates were above 5% who really suffer when the bank fails and rates are reset down to 2% or lower.

The average 3-year CD rate was the big loser this week, falling 6 basis points from 2.58% APY to 2.52% APY. USAA Federal Bank Savings Bank cut their rate, leaving Bank United 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 dropped by only 1 basis points to 3.19% APY. The top rates have also remained steady or even increased slightly..

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 up from 3.33% APY 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of the total interest that would have been earned on the principal balance of the account if funds had not been withdrawn prior to the maturity date."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 has trended down over the past four weeks, mainly because 3-year CDs have dropped faster than savings account and money market rates. The opposite is happening with 5-year CDs, which have remained firm. The spread between 1-year CDs and 5-year CDs hit another record high last week. You can now earn on average 1.55% APY more in a high yield 5-year CD than a high yield 1-year.