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CD Rates Summary December 5, 2017

CD Rates Summary December 5, 2017
December 05
12:10 2017

A December Fed rate hike continues to look like a sure thing. The December FOMC meeting is scheduled to start next Tuesday (Dec 12th) with the rate announcement on Wednesday. In addition to the policy statement, Janet Yellen is scheduled to give a press conference and the Fed will be releasing its economic and federal funds rate projections. Those rate projections will be the most interesting thing from the meeting. Will they show more FOMC members anticipating four or more rate hikes in 2018? In September, a majority at the FOMC had anticipated only three rate hikes in 2018.

One thing that may change what we see from the Fed in 2018 is the new members. President Trump has made two new nominations in the last month. On November 2nd, President Trump nominated Jerome Powell to serve as the Fed Chair to replace Janet Yellen, and last week, President Trump nominated Marvin Goodfriend to become a member of the Board of Governors. In October, the Senate confirmed President Trump’s nominee, Randal Quarles, to fill the position of Vice Chairman for Bank Supervision on the Board of Governors. Even if Goodfriend is confirmed by the Senate, there will still be three empty seats on the Board of Governors.

The new composition of the Fed may be a little more hawkish than it has been which would increase the chance of more rate hikes. However, there is a troubling issue with the latest nominee, Marvin Goodfriend. He has been an advocate of negative interest rates. You can review all of the supposed benefits of negative interest rates and ways to implement it in his 2016 paper that was presented at Jackson Hole.

For much of the last decade, we have heard Fed officials try to justify the value of zero interest rates. The one thing they never fully addressed was how unfair zero interest rates are to savers. If they go down the path of negative interest rates, they would add a new level of unfairness.

Only the 30-year Treasury yield declined from last week. The 2-year and 5-year yields had the largest increase, both rising 8 bps from last week. You can see how the yield curve has flatten since the start of the year. Short-term yields have risen considerably while 10-year and 30-year yields have fallen.

The odds of a December Fed rate hike as indicated by the Fed funds futures continue to be 100%. The odds of at least two rate hikes by next June had a slight decline, falling from 83.8% last week to 83.4%.

Best Nationally-Available CD Rates

The flattening yield curve can also be seen in the top CD rates, but the flattening had a slight reversal in the last two weeks. That’s due to a sizable increase in long-term brokered CD rates. For nationally available rates, there’s now 120 bps difference between the best 6-month CD rate (1.75% APY at Advancial) and the best 10-year CD rate (2.95% from a 114-month non-callable brokered CD).

Long-Term CDs

I’m afraid we didn’t get any great December CD deal at PenFed. Each November I’m hoping for a repeat of December 2013 when PenFed offered a 5-year CD with a 3.04% APY. The start of this December, PenFed only increased its 15-month CD (1.71% APY) and its 24-month CD (1.87% APY). They’re competitive, but they’re below what you can get at several internet banks.

The best deal continues to be the 5-year CD with a 2.80% APY at Mountain America Credit Union (MACU). They also have a version of this CD that allows add-on deposits (up to a maximum balance of $100k). Please refer to my blog post for more details on these CDs and how you can join MACU.

The only bank to make a noteworthy change to 5-year rates was Ally Bank which just today increased the rate of its 5-year CD from 2.25% to 2.35% APY for deposits of at least $25k. The top 5-year rate at an internet bank continues to be 2.45% APY at Capital One Bank. Both have mild early withdrawal penalties (5 months’ interest at Ally and 6 months’ interest at Capital One). You can see how they compare with MACU’s CD by using our Early Withdrawal Penalty Calculator.

Mid-Term CDs

Three institutions are now tied for the 2-year top spot for nationally available CDs. All three have a 2.10% APY. The two new ones are iGObanking.com ($1k minimum) and Advancial Credit Union ($50k minimum). The third one is Bank5 Connect ($500 minimum) which has been available nationwide (except for MA and RI) since mid-November.

We have a new leader for the 3-year group, but there are a few caveats. Navy Federal Credit Union started offering a special 32-month IRA CD. The caveats are that it’s only available in an IRA, there’s a $250k maximum balance and Navy Federal isn’t open to all (although membership is now easier than it used to be.) On the positive side, it’s an add-on CD that allows an unlimited number of deposits as long as the total balance doesn’t exceed $250k. The minimum deposit is only $50. Please refer to this blog post for more details.

For non-IRA 3-year CDs, we now have a 2-way tie for the top spot. USALLIANCE Financial increased the rate of its 35-month CD special by 2 bps to 2.40% APY. That now ties the 35-month CD special at Fort Knox Federal Credit Union, which is infamous here as the credit union which raised the early withdrawal penalty on members’ existing certificates.

Short-Term CDs

In addition to the 32-month IRA CD special, Navy Federal is also offering a special 15-month CD with a 2.25% APY. Like the IRA special, this CD also allows add-on deposits and the minimum deposit is only $50. The downside is a $50k maximum balance.

One-year CD rates continue to rise. Advancial Credit Union increased its Jumbo 1-year CD rate by 3 bps to 1.90% APY. Advancial continues to be on top for nationally-available 1-year CDs. Crestmark Bank also increased its 1-year CD rate. It’s in second place with a 1.80% APY ($25k minimum). If we get another Fed rate hike next week, it probably won’t be long before we see nationally-available 1-year CDs with a 2% APY.

Long-Term CDs with Mild EWPs

Below is my standard explanation of the strategy of using long-term CDs with mild early withdrawal penalties and how I include these effective yields in the tables below.

An alternative to short-term CDs is long-term CDs that have mild early withdrawal penalties. I include the effective yields of a few long-term CDs when closed early in the tables below. All of these have competitive long-term CD rates and an early withdrawal penalty of 6 months of interest or less. The combination of a high long-term CD rate combined with a mild early withdrawal penalty makes these CDs pretty good deals even when closed early. If you want to compare the effective yields of other CDs after the early withdrawal penalties, please refer to our CD Early Withdrawal Penalty calculator.

The risks of planning for early withdrawals of long-term CDs were highlighted by the deposit agreement change at Ally. The risks have also been seen at credit unions which have raised the early withdrawal penalties on existing CDs. I have more details in this blog post.

Savings & Checking Account Rates

We have a new savings account rate leader. Since news of this came out today, I wanted to mention it in the CD summary. Colorado Federal Savings Bank increased the rate of its Premier Savings Account by 20 bps to 1.65% APY for balances of $50k+. I’ll have more on this tomorrow.

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