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CD Rates in 2013

If you're retired and rely on interest income from certificates of deposit, the past several years have been difficult. For the past four years CD rates have been declining - hitting record lows in 2012 for all types of certificate of deposit terms. Unfortunately, you can expect more of the same for 2013 as CD rates at banks will continue to move lower.

During the final month of 2012 we saw many of the top bank CD rates move lower. We had 5 banks offering the best CD rates on 1 year certificates of deposit at 1.04 percent with an APY of 1.05 percent. Three of those banks have lowered their 1 year CD interest rates to 1.00 percent or less. Now only Colorado Federal Savings Bank and GE Capital Retail Bank's 1 year CD rates remain the best rate.

While we expect CD rates in 2013 to move lower, the declines will be less than they have in years past only because rates are already so low. In the first six months of 2013, the highest CD rates will probably be at 1.00 and maybe even less than 1.00 percent. Right now there are two banks beside Colorado FSB and GE Capital Retail Bank offering 1 year rates at or above 1.00 percent. Discover Bank and ableBanking are also offering 1 year rates at 1.00 percent.

With the remaining four banks, it isn't hard to see all rates at or below 1.00 percent in 2013. Think the top rates are low?  In the FDIC's Rate and Rates Cap Survey for the week ending January 14, 2013, 1 year rates averaged 0.23. Longer term CD rates are not much better. The top CD rates on 2 year certificates of deposit list are from CIT Bank at 1.19 percent with an APY of 1.20 percent. Higher than the FDIC average of 0.38 percent.

Going out longer on the rate curve things only get slightly better. The highest 5 year CD bank rates on our rate list are below 2.00 percent at 1.78 percent with an APY of 1.80 percent. The FDIC average 5 year rate is less than 1.00 percent at 0.82 percent. Locking in a 5 year CD rate under 2.00 percent doesn't make sense right now.

A few years ago it made sense to lock in longer term certificates of deposit when rates were moving lower. I do expect interest rates to move higher in the next couple of years so it makes sense to stay invested in shorter term maturities. That way you can invest in higher rates sooner and not have your money locked away earning a smaller percentage.
Author: Jason P. Jones
January 15th, 2013