Top CD Rate Drops to 3.31% APY - Savings and CD Averages Down

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of the total interest that would have been earned on the principal balance of the account if funds had not been withdrawn prior to the maturity date."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.