After last week's big drop, CD rates were flat this week. The spread between 5-year and 1-year CDs hit a new record high.

The average 1-year CD rate followed last week's 12 basis point drop with a much smaller 3 basis point drop as rates fell from 1.71% APY to 1.68% APY. 1-year rates are not at their lowest point since we began tracking. Despite the decline in the average, the top rate remains a 2% APY CD from First City Bank. First City is offering a top rate but be sure to stay under FDIC insurance limits - it is rated as 0 stars according to Bauer Financial for its safety and soundness.

The average 3-year CD rate remained at 2.57% APY. USAA Federal Bank continues to have the top rate with a 2.81% APY 3-year CD. The minimum deposit for that rate is $175,000. While you need a military connection to quality for their loan and insurance products, you do not need one to take advantage of USAA deposit products. In the banking world, USAA is highly regarded for its banking products and services. If you don't have $175,000 to deposit, then Bank United is offering a 2.75% APY 3-year CD with a minimum deposit of only $5,000.

The average 5-year CD rose 1 basis points to 3.20% APY after plummeting 13 basis points last week.

USAA continued 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 3.33% APY with a minium balance of $2,000. 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of the total interest that would have been earned on the principal balance of the account if funds had not been withdrawn prior to the maturity date."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 which is a little higher than others in the market (and we try to avoid penalties over 1 year's interest on 5-year CDs).

The spread between savings rates and CD rates has come down slightly over the past couple of weeks, although it is still very high by historical standards. That means a longer-term CD is paying more versus a savings account than it has in the past. The spread between 1-year and 5-year CDs hit a new record high this week. You can now earn on average 1.52% APY more in a high yield 5-year CD than a high yield 1-year.

Last week the Fed reaffirmed its commitment to keep rates low and that seems to have opened the floodgates for banks to lower rates.

Average CD rates were down significantly over the past week, with some terms showing declines not seen since the height of the recession. Despite the drop in averages, top rates remained the same for 1 and 3 year CDs while the top 5 year CD followed the average lower.

The average 1-year CD rate dropped by 12 basis points from 1.83% APY to 1.71% APY. That's the steepest drop in the average since March 13, 2009 when the average declined by 14 basis points. Despite the decline in the average, the top rate remains a 2% APY CD from First City Bank. First City is offering a top rate but be sure to stay under FDIC insurance limits - it is rated as 0 stars according to Bauer Financial for its safety and soundness.

The average 3-year CD rate dropped by 5 basis points from 2.62% to 2.57% APY. USAA Federal Bank continues to have the top rate with a 2.81% APY 3-year CD. The minimum deposit for that rate is $175,000. While you need a military connection to quality for their loan and insurance products, you do not need one to take advantage of USAA deposit products. In the banking world, USAA is highly regarded for its banking products and services.

The average 5-year CD plummeted 13 basis points from 3.31% APY to 3.19% APY. That's the largest drop since March 2009 when the average dropped 19 basis points. That period also marked the low point in the stock market.

In terms of top 5-year CD rates, BankUnited dropped its rate from 3.50% APY to 3.25% APY. As a result, USAA now also has the top 5-year CD rate at 3.41% APY. Everbank has also dropped its rate and now sits at the #2 spot with a 3.33% APY CD (last week it was paying 3.47% APY).

Given that Bestcashcow is a website dedicated to finding the best high yielding banks and their products, I think it is only fitting that I write my first article about compounding interest and its effects. Many people, especially financially savvy visitors of this website, have seen banks advertising savings or CD’s with a certain rate, usually called the “Annual Percentage Rate” or APY. Some banks offer a 1.00% APY, others may advertise a 1.50% APY rate, yet the majority of us who see these ads still leave our money in a checking account with our primary bank, yielding next to nothing. I know this because besides hearing stories from others, I’ve done it myself. However, this is absolutely the wrong thing to do.

Even though a 1.00% difference in APY might seem like nothing now, as the chart below shows, it is definitely worthwhile to make sure your bank’s yield is competitive. This table compares a $20,000 deposit put into a 1.00% APY yielding account, against the same balance in a 2.00% APY yielding account. Both accounts have their interest compounded daily, for a period of five years.

Scenario 1 (2.00% APY) Scenario 2 (1.00% APY)
Deposit amount: $20,000 $20,000
APY: 2.00% 1.00%
Total interest paid: $2,103.36 $1,025.41
Value of account after 5 years: $22,103.36 $21,025.41

The results clearly state the difference: by simply moving your money into an account that has a 1.00% higher yield, you can come out over $1,000 ahead in five years. While some of us have less than 20k to deposit, and others have more, the same rule applies. And although it may seem like a headache to find banks paying the greatest yields, sites like Bestcashcow and its savings chart, allow you to quickly compare banks to find the ones with the highest rates.

By taking the time to compare and move your money to competitive banks, you are increasing your future income by thousands, if not tens of thousands of dollars. Of course, the other major factor of compounding is time, and while we can’t always control untimely emergency expenses that can force us to withdraw our money, a car breaking down perhaps, we can and should control where and at what rate our money is; it would be an injustice not to, and it’s finally about time we make our money work for us.

See BestCashCow's compounding interest calculator here.

Explore the best savings rates here and the best CD rates here.