Live Oak Bank 1-Year CD Rate Jumps Upward
It’s been six months since, North Carolina-based Live Oak Bank (Live Oak) had a blog-worthy CD. Following a 75-bp increase this week, the Live Oak 1-year CD earns 4.50% APY, which is currently the highest APY offered on an internet bank 1-year CD. The minimum opening deposit is $2.5k deposit, with a balance cap of $250k.
Live Oak does not offer IRA CDs, but Business CDs are available, having the same rates and deposit requirements as the personal account CDs. The details of the current 1-year CD rate and the rate history are available in the table below.
| APY | MIN | MAX | INSTITUTION | PRODUCT | DETAILS |
|---|---|---|---|---|---|
| 5.40% | $2.5k | $250k | Live Oak Bank | 1 Year CD | |
| 5.40% | $2.5k | $250k | Live Oak Bank | Business 1 Year CD |
Unfortunately, all of Live Oak's longer-term CDs have low rates. When the 1-year CD rate went up, the 18-month and 2-year CD rates went down, and now they match the 3-, 4- and 5-year rate (currently only 2.00% APY.) It's an odd situation when the 1-year CD has a rate so much higher than the longer-term CD rates. For much of this year, we've seen an inverted yield curve with Treasurys, and now it's becoming more common with CDs.
Early Withdrawal Penalties
As stated in the Truth-in-Savings disclosure (page 27):
You may make withdrawals of principal from your account before maturity. Principal withdrawn before maturity is included in the amount subject to early withdrawal penalty.
There is no mention of having to obtain the bank’s consent to withdraw some or all the principal before maturity.
The Truth-in-Savings disclosure also includes the actual Early Withdrawal Penalty (EWP).
If your account has an original maturity of less than 24 months: The fee we may impose will equal 90 days interest on the amount withdrawn subject to penalty.
While a description of an EWP can often be found on a bank’s website, the actual process of an early withdrawal is rarely detailed. As stated in the CD FAQs, the first step is to call a Live Oak Customer Success Manager (866.518.0286) to request a withdrawal or closure. An email confirming your request will be sent to the email address you provided when opening the CD.
The funds being withdrawn can be transferred to an external financial institution by ACH or wire transfer (1-2 business days, typically) or immediately transferred to a Live Oak High Yield Online Savings (HYOS) account, which currently earns 2.75% APY on all balances up to $5 million. The HYOS rate has not kept pace with other internet bank savings account, but having an HYOS would be convenient as a temporary “parking place.”
Funding and Other Particulars
- Funding – online application allows you to link an external account from which to draw opening funds; after opening CD, you can add additional external accounts (4 max).
- Maturing Funds – maturing funds can be distributed through an ACH or wire transfer, or transferred to an HYOS; Live Oak does not issue checks.
- Interest – compounded/credited monthly and can be disbursed to any linked external account or an HYOS.
- Grace Period – 10 calendar days before automatic renewal.
- Beneficiaries – unlimited, but can only be a US citizen, a charity, a trust, or a non-profit organization; percentages assigned; Social Security numbers preferred but not required.
- Credit Check – None.
Availability
Headquartered in Wilmington, North Carolina, Live Oak Bank is a pure internet bank, having no brick-and-mortar branches.
U.S. citizens and permanent residents (18 years or older) who have a valid Social Security number or a valid Individual Tax Identification Number are eligible to open an Live Oak CD and/or Online Savings account.
The CD Account FAQs specifically states that,
People lawfully admitted to the United States on a temporary basis who have DHS authorization to work are not eligible to open an account.
Live Oak Bank has done away with its “Get Started” page, which was previously the first step toward initiating the “quick three-step application.” The online application can be accessed from the Personal Banking page of Live Oak Bank’s website. (Make sure you select the correct CD term-length on the Personal Banking page before clicking on “Open Now,” as the online application is customized based on the term-length chosen.)
Bank Overview
Live Oak Bank has an overall health grade of "A" at DepositAccounts.com, with a Texas Ratio of 0.82% (excellent), based on June 30, 2022 data. In the past year, the Live Oak Bank has increased its total non-brokered deposits by $1.08 billion, an excellent annual growth rate of 20.22%. Please refer to our financial health overview of Live Oak Bank (FDIC Certificate # 58665) for more details.
Opening its doors in 2008, Live Oak Bank is currently the fifth largest bank headquartered in North Carolina and the 166th largest bank in the country, with more than $9 billion in assets and more than 78,000 customer accounts. As stated on the Bank’s About Us page,
Live Oak is a digital, cloud-based bank serving small business owners in all 50 states. We are the leading USDA B&I lender and the #1 SBA 7(a) lender by dollar volume* in the country and our mission is to be America’s small business bank.
*The data supplied by the SBA reflects 7(a) highest dollar volume during FY 2021. The data supplied by the USDA for the highest dollar volume during FY 2021.
How the 1-Year CD Compares
When compared to similar length-of-term CDs tracked by DepositAccounts.com which are available nationally and have minimum deposit requirements of $10k or less, only one bank has a higher rate than currently offered on the Live Oak Bank 1-year CD. The following table compares the 1-year CD to the two highest-rate CDs from other banks and the two highest-rate CDs from credit unions.
The above information and rates are accurate as of 11/11/2022.
To look for the best CD rates, both nationwide and state specific, please refer to our CD Rates Table page.
Example: 7 year callable beg. 5/25/23, 5.25%, payable monthly beg. 12/25/22.
Call schedule not filled out, but likely this could be callable monthly thereafter (6/25/23, 7/25/23.... )
I'll stick to 100% Call Protected CDs or nothing, thank you very much! ;o)
However, if you think about it, rates may not, in fact decline. Callable fixed-income that yields say 1 point more than non-callable, may be some minor hedge against rising rates.
Don't worry about it. Just be glad you are more than content with whatever you choose to do.
"Heads, I win; Tails, you lose."
XXXX Bank, 8 year callable, 5.20%, payable monthly, next call 11/18/23.
The highest 1 year brokered CD, is 4.70%, but interest on the 1 year is payable at maturity.
A lot to think about, but advantage to brokered CD's is the small lots you can buy, and easy to ladder, and easy to only select non-callable if you want guaranteed time period.
As far as callable CDs go... No idea why anyone would buy a 3 -10 Year CD that carried with it the constant risk of being called in. Where is the security in that?
What pricing model and values did you use to determine that?
I looked at recent issues of reasonably comparable securities with maturities anywhere from three to seven years and callable after three or six months.. The spread over non-callables from the same issuers was anywhere from 85-180 basis points.
For example, FHLB recently issued a 7yr/6mo at +200 to the 7yr Treasury note. FHLB 7yr non-callables trade at ~+20. In that case the value of the option was 180 bp.
Option valuation for a 7yr/6mo is reasonably comparable for brokered CDs versus GSE debt. Neither has material credit risk, so the variables affecting the value of the options are sufficiently similar to provide useful indications of relative value. Whatever differences there may be are not nearly significant enough to explain such a large difference in the offered spreads between the two types of issues.
The differences for callables over non-callables in the 3yr and 5yr maturities was in the area of +85 to +100 basis points.
Sort of using it as a pseudo laddered concept for one year part. But maybe they changed the timing with Thursdays big move down in rates
That said, I've never had a problem making withdrawals, either through ACH or the mail. As a 10+ year customer, I've had mixed experiences with CS, but I wouldn't say they were "terrible".
Not good.
The only callable CDs I know are from the investment companies, e.g., Fidelity.