Pentagon Federal Credit Union upped the rate on its 5 and 7 year CDs (called money market certificates by PenFed) to 3.04% APY, the first return to 3% in a long while for the 5 year term. That is by far the best 5 year CD rate (check table) with CIT Bank offering the next highest rate at 2.05% APY. The 3% rate is also available in a 7 year money market certificate. In general, I have been arguing against longer-term CDs because I believe that rates are on the rise and it doesn't make sense to lock-in for a long term at a lower rate. But 3.04% is pretty attractive and savers looking for a little extra yield may find this worthwhile. The average 5 year CD rate is 1.079% APY and the BestCashCow Savings Booster Calculator shows that moving money into the PenFed 5 year CD will result in an additional $8,255 in savings on $50,000 over a 10 year period.

Try calculating the extra money you would generate putting money into a PenFed CD.

Almost anyone can join PenFed. Membership is open to those serving in the military or veterans as well as those belonging to a qualifying organization. In general, anyone can become a member by joining one of the participating organizations for a nominal fee. Organizations open to all individuals include National Family and Military Association ($20 one-time fee) or Voices for America's Troops ($15 one-time fee). This is a two for one as you can join worthy organizations and also be eligible to become a PenFed member and take advantage of their competitive rates.

Share Certificates can be opened online, via phone or at a PenFed branch.

Pentagon Federal Credit Union is the third largest credit union in the United States with over $15 billion in assets. All deposita re NCUA insured up to the limit of $250,000 per individual.

Thanks to Shorebreak for letting us know about this rate increase!

The rally that we saw in CD rates over the past four months appears to have pretty much exhausted itself. Short term and long term CD rates have remained flat over the past month. Online savings account averages have bumped up a bit as several banks have raised rates. The recent budget battles, botched health care roll-out, and signals from Fed Chairmwoman-to-be Janet Yellen that she plans to keep rates low have all contributed to squelching the mini rally we saw in the spring and summer.

From one month ago, 12 month average CD rates decreased by one basis point from 0.349 to 0.348% APY. Average 3 year CD rates dropped from 0.714 to .713% APY. Five year average CD rates remained flat at 1.079% APY. Online savings accounts averages moved from 0.664% to 0.685% APY.

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The chart below shows the trend in average rates since October 2012.

Top Rate Recap

During this period, top savings and CD rates stayed pretty much status quo.

• Online Savings: GE Capital Bank retains the top spot at 0.90% APY.
• 1 Year CD: GE Capital Bank has moved into the top spot with a 1.05% APY rate, replacing Nationwide Bank that had a 1.06% APY rate but with a $100,000 minimum balance.
• 3 Year CD: Pentagon Federal Credit Union has increased its rate to 2.02% APY, with the next closest rate being CIT Bank at 1.40% APY (thanks to Shorebreak for alerting us on the rate increase with PenFed).
• 5 Year CD: CIT Bank moves into the top spot with a 2.05% APY CD, replacing iGoBanking.com, which had a 2.05% APY rate also but has dropped its rate down to 1.65% APY.
• Rewards Checking: Hope Credit Union and Money One Federal Credit Union both have the top rewards checking rate of 3.01% APY for balances up to $10,000. Both credit unions are open to members from across the country.

It's possible to find even better rates at local banks and credit unions (especially for CDs). You can search for better local rates here.

Online Saving and CD Spread

The difference between average 1 year CD rates and average online savings rates spiked up over the last two weeks with the increase in online savings account averages. As the chart below shows, the difference between online savings accounts and CDs has remained relatively consistent over time. It's my opinion that online savings accounts represent the best place to park your cash at the moment, as they offer a high rate, relative rate stability, and liquidity should rates begin to rise in the future. Certificates of deposit just do not pay enough premium to justify keeping money locked in them.

General rate environment

The shutdown augered the start of a slow patch in the economy. That, combined with the botched healthcare rollout have stolen the headlines and taken some of the wind out of the sale of consumer confidence. Maybe someday, the government will get out of its own way.

Janet Yellen, nominated to succeed Ben Bernanke as the next Chairperson of the Fed also made it clear that she will continue the quantitative easing program. The result has sent the Dow soaring and put a further damper on any rate gains for longer-term instruments. In addition the Euro-zone reported slowing growth, further depressing growth prospects for the global economy and demand for U.S. goods and services.

At this point, any economic uptick is obscured by all of this other noise. It will be interesting to see how sales come in this Holiday season. A blockbuster season woutl auger well for economic growth. Still, I remain optimistic that economic growth has not stalled out and that once the dust settles from the shutdown and bickering in D.C., the debut of Obamacare, and Ms. Yellen's arrival (assuming she is confirmed) some sense of growth and optimism will return.

So if we look at the scorecard:

• Taxes & Government: Increasing - drag on growth. Negative
• U.S. economic growth: Slow to moderate. A protracted fight on the debt ceiling has hit growth and lowered rates. While this was improving last month this month we'll call it: Neutral.
• Europe and the world: Europen and Japanese growth slowing. China prospects improving. Overall, world picture is improving. Neutral
• Technology: Gas prices at the pump coming down and plentry of natural gas for the cold winter months due to fracking and other extraction innovations. Slightly Positive.

My outlook: The government shutdown and default embroglio and healthcare rollout have taken some wind out of the economies sales. Still, as long as the politicos are not back at it in 3 months the damange should be relatively short. Short term rates will continue to fall for a bit longer even as longer term rates continue to rise. The Fed will increase the Federal Funds rate within the next 14 months. Savings rates will hover in the 2-3% range by the end of next year.

Savings Accounts or CDs?

The data continues to show that opening a savings account is a better bet than a 1-3 year term CD and I expect this to hold through 2013. Online savings accounts have held the line over the past year and even though CD rates have stabilized and ticked up, the premium is still not enough to jusity locking the money away. While the premium for opening a 5 year CD over a 1 year CD has increased over the past six weeks, it is still only at 0.722 versus over 1 percentage point in October 2011. In a rising rate environment, it does not make sense to tie up money for 5 years with only a 30 basis premium.

Is it worth it to go long and open a 5 year? I don't think so any more. I think the 5 year CD rates are just too low and that you'd be better off putting your "safe" money into an online savings account and waiting for rates to rise. I spoke to one banker several weeks ago who said that "no one was investing in long-term CDs." Keep your powder dry.

For money you want to keep liquid, go with online savings accounts. They offer better rates than 1-3 year CDs and athough several banks have dropped rates in the past month, they have still offered decent rate stability over the past year and a half.

Make the best of a tough savings situation in 2013

Yields may be low in 2013 but a savvy saver can boost the return with no increase in rate by rate shopping. By shopping around, a saver can earn an extra half to full percentage point. On $100,000, that's $1,000 in extra cash per year. Remember, even in today's environment, there is competition for your cash.

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• Find the best savings account rates.

I am not a big fan of long-term CDs right now. I think the rates are very low, especially compared to more liquid online savings accounts, and that they do not compensate enough for the risk of rising rates and inflation sometime in the future. The other day, a user on BestCashCow asked what I thought about bump-up CDs.

For those not familiar with Bump-up CDs, they generally provide the depositor with the ability to increase the rate a specified number of times during the length of the CD. On a five year CD for instance, the depositor might be able to raise the rate one or two times during the five years. The idea is that if interest rates do rise significantly sometime during the term, the CD rate can reset at a higher rate, taking advantage of this rise in rates. At the same time, if rates decline, the CD can remain at its original rate.

In theory, the concept is sound. Bump-up CDs allow depositors some flexibility so that if rates rise, they won't be stuck in a low yielding CD.

The main criticism of a bump-up CD, as stated in this Kiplinger article, is that the interest rate on a bump-up CD can be substantially lower than on a regular CD to compensate for this flexibility. I did some analysis of bump-up rates versus regular CD rates and surprisingly found them relatively close and sometimes better than their regular counterparts. For example, Bank of America has a bump-up product that it calls its Opt-up CD. The starting rate on the 18-month CD is 0.16% with a $10,000 minimum deposit (it's a pathetic rate) but the regular rate on an 18 month CD was actually worse at 0.07% APY. Likewise, CIT has a bump-up that pays 1.20% as its initial rate while the regular rate is 1.09%. And Ally Bank, which has spent enormous sums of money promoting its Raise Your Rate CD pays 1.30% APY for a 4 year bump-up versus 1.50% APY for a 5 year regular CD (it doesn't offer a regular 4 year CD). While Ally's bump-up rate is lower I'd take the bump-up in exchange for giving up 20 basis points. A quick survey shows that many bump-ups are actually beating regular CD rates in some cases, or coming close to regular rates, even with the added flexibility.

• To view current CD rates, please click here.

Banks are offering such comparable CD rates because they really don't expect interest rates to rise very much over the next couple of years. As rates have fallen over the past five years, bump-ups have beena good marketing ploy but the rate-increase feature hasn't been used. But now that rates seem to be on the rise, albeit a very gentle rise, I expect depositors will be more eager to seek out bump-ups. I also expect banks will begin to offer less yield on their bump-ups. Before that happens, depositors might have a short window of opportunity to both get a good rate and the flexibility to bump-up to even higher rates in the future.

Some Select Bump-Ups to Consider (these rates may be old. Please check our rate tables for updated rates).

CIT

1-Year Achiever CD: 1.00% APY

2-Year Achiever CD: 1.20% APY

You can increase your rate and add additional funds once during the term of the CD.

Ally Bank

2-Year Raise Your Rate CD: 1.00% APY

4-Year Raise Your Rate CD: 1.30% APY

You can raise your rate once with a 2-year CD and twice with a 4-year CD if rates go up during the term period.

Digital Credit Union

Jump-up regular certificate 27 months: 1.13% APY

Jump-up jumbo certificate 27 months: 1.23% APY

Jumbo certificate has a $25,000 minimum balance. Depositors can jump up the rate once per term.

If you find any more good bump-ups post them below and I'll add them to the list.