With the Federal Reserve making its third rate hike in the last six months -- and the fourth since December 2015 -- it's clear that the U.S. is finally in a rising interest rate cycle. This is good news for savers who have money in savings accounts and certificates of deposit. However, banks haven't been in a hurry to raise deposit rates. Average rates on savings accounts and CDs are only inching up.
But a more noticeable rise can be seen among the rate leaders. These are typically internet banks that are serious about raising their deposit levels. In the last six months, several of them have been increasing their CD rates. Also, new internet banks are launching with top CD rates in an attempt grab market share away from the big players. This competition has resulted in CD rates reaching highs not seen in years.
A bank that has recently started offering internet CDs holds the top spot for one-year CD rates. New York-based M.Y. Safra Bank offers an online CD with a 1.48 percent annual percentage yield (APY). The minimum deposit is $5,000. That's the highest rate on a nationally available one-year CD that requires less than a $100,000 deposit.
For two-year CDs, First Internet Bank tops the list at 1.71 percent APY for deposits of at least $1,000. As the bank's name suggests, it has been around for a while. Launched in 1999, it's one of the oldest internet banks. It has been raising its CD rates since the start of the year. This two-year CD began the year with a 1.36 percent APY.
Like First Internet Bank, Salem Five Direct has a long history. Occasionally, it comes out with a competitive CD. This happened in mid-May when Salem Five Direct increased the rate of its three-year CD from 1.1 percent to 2 percent APY. This rate now takes the top spot for three-year internet bank CDs.
One thing to note about today's interest rates is that rates don't increase much as the term lengthens. That's apparent with four-year rates. The top four-year is only five basis points above the top three-year rate. Two banks share the lead for this four-year rate. M.Y. Safra Bank and Northern Bank Direct are both offering a 2.05 percent APY. Northern Bank Direct is one of the new internet banks that launched this year.
Two internet banks share the top spot for five-year CD rates. Synchrony Bank and Popular Direct are both offering a 2.35 percent APY. One difference is the minimum deposit. Synchrony requires at least $25,000 to qualify for that rate, but Popular Direct requires only a $10,000 minimum.
Clearly, internet banks are competing against each other to gain deposits. As the Fed continues to hike rates, CD rates will rise, but they may not rise as much as savers hope. Low inflation and weak economic growth have caused banks to pull back some on their long-term CD rates in the last couple of months. And if those economic conditions don't improve, the Fed may postpone its gradual rate hikes. Savers aren't out of the woods yet.
Ken Tumin is founder and editor of DepositAccounts.com, which has been tracking and rating the savings, CD and checking account offerings of banks and credit unions for more than a decade.