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Top 5 Year CD Rates Back Above 2.00 Percent

Long term CD rates are finally moving higher thanks to higher long term U.S. Treasury yields. The highest CD rates our 5 year certificate of deposit rate list are now from at 2.03 percent with an APY of 2.05 percent. Earlier this month, the best CD rate on 5 year CDs was from EverBank at 1.74 percent with an APY of 1.75 percent.

Interest rates on Treasury yields soared the past two months because of a comment the Federal Reserve Chairman, Ben Bernanke, made at a luncheon. On May 2, five year bond yields closed at 0.65 percent, Friday's close on five year bond yields was at 1.31 percent, a 100 percent increase in two months.

5 Year U.S. Treasury Yields Pull Back

Top 5 Year CD Rates Back Above 200 Percent5 year bond yields have pulled back from the highest level this year. On July 5, yields closed at 1.60 percent. The recent sharp run-up in long term bond yields was way overdone and I believe rates will continue to drift lower from these levels. The increase in rates was on fears that the Federal Reserve would end their stimulus measures sooner than later but the markets learned that isn't the case.

Since Bernanke's comments spooked the markets, several Fed officials have come out and said they plan to continue their stimulus measures of buying long term bonds and mortgage-backed securities to surpass interest rates.

There has also been talk of keeping the fed funds rate at zero percent until the nation's unemployment rate falls below 6.00 percent or 5.5 percent, which is even lower than the previously stated level of 6.5 percent.

Locking in at Current CD Rates

Bank CD rates on 5 year certificates of deposit are higher but I still wouldn't lock my money in a 5 year CD at these rates. Interest rates will move slightly higher over the next year but over the next several years I expect rates to increase substantially. The Fed's policies have been so accommodating for many years now, when the economy takes off the Fed will have to quickly raise interest rates to a more neutral level.

A more neutral level, a point at which the Fed's policies are not contributing to or taking away from growth, will mean a fed funds rate of around 2.00 percent to 3.00 percent. The fed funds rate in that range will force CD rates higher and 5 year rates will be around 4.00 percent to 5.00 percent.

Future Direction of Short Term CD Rates

Short term CD rates will also move higher when the fed funds rate is increased. 1 year CD rates will be around 3.00 percent to 4.00 percent. CD rates will probably increase to these levels some time in 2015, so you can see why locking in a current 5 year CD rate at 2.00 percent isn't a good idea.

You're better off sticking with shorter term CDs, savings accounts, or money market accounts for the next couple of years until rates move higher. You can search for and compare CD rates for all certificate of deposit terms here at
Author: Brian McKay
July 22nd, 2013