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Online Bank CD Rates Falling to All-Time Lows

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The Fed’s zero interest rate policy (ZIRP) is just over two months old, and already we’re seeing online banks cutting their CD rates to all-time lows. This doesn’t bode well for future deposit rates, especially if the economy takes a long time to recover from the COVID-19 pandemic. I’ve reviewed the rate history of three online banks that have recently cut their 5-year CD rates to all-time lows. The disturbing thing to note is that the previous lows didn’t occur until several years into the last ZIRP period, which lasted from December 2008 to December 2015.

Last week I reviewed several online banks that have cut their 5-year CD rates so low that they are now lower than their savings account rates.

Ally Bank 5-Year High Yield CD

On Friday, Ally Bank’s 5-year High Yield CD rate fell to an all-time low of 1.40% APY. The 5-year APY had been at 2.15% through January and February. Ally Bank started to cut soon after the first Fed emergency meeting on March 3rd. On March 6th, Ally Bank lowered the 5-year rate to 1.75% APY. The rate continued to fall. On May 12th, the 5-year rate had fallen to 1.50% APY, which tied its all-time low that occurred in 2013.

I annotated the DA rate history chart of Ally Bank’s 5-year High Yield CD so you could clearly see the rate milestones.

Ally Bank 5-Year CD Rate History

DA’s rate history chart for Ally Bank began in October 2009, which was almost a year after the Fed started its last ZIRP period. One thing to note is that rates remained relatively high well into this ZIRP period. The 5-year rate was 3.40% APY in October 2009. The rate didn’t fall below 2.00% until October 2011. Before the Fed began cutting rates in 2019, Ally Bank’s 5-year rate reached a high of only 3.10% APY.

Synchrony Bank 5-Year CD

Synchrony Bank also lowered its 5-year CD rate on Friday from 1.50% to 1.40% APY, and like Ally, Synchrony Bank began slashing the rate soon after the first Fed emergency meeting. Before this meeting, the rate had been holding at 2.15% APY. Also like Ally, Synchrony Bank’s 5-year rate reached a high of 3.10% in 2018. The rate started to fall in May 2019.

I annotated the DA rate history chart of Synchrony Bank’s 5-year CD so you could clearly see the rate milestones.

Synchrony Bank 5-Year CD Rate History

DA’s rate history chart for Synchrony Bank didn’t begin until January 2013. The reason this didn’t begin in 2009 is that Synchrony Bank used to be MetLife Bank. In January 2013, GE Capital Retail Bank acquired MetLife’s online deposits business. GE Capital Retail Bank didn’t last long. In June 2014, the Bank changed its name to Synchrony. Since it was only a name change, DA retained the product and rate history.

When DA’s rate history for Synchrony Bank began in January 2013, the 5-year CD rate was at its low of 1.50% APY. The rate slowly increased until it plateaued at 2.30% in April 2014. It had a slight fall in November 2014 to 2.25%, and then it held steady until February 2016. That was the year after the first Fed rate hike. The global economic turmoil in early 2016 ended hopes of higher rates and caused CD rates to decline. By August 2016, the 5-year CD rate had fallen to 1.85%. Rates finally began to rise in 2017, and they kept rising until late 2018. Synchrony Bank’s 5-year CD reached its peak of 3.10% APY in October 2018, and this rate held until May 29, 2019.

First Internet Bank 5-year CD

First Internet Bank never became as popular as Ally or Synchrony, but it has a long history as an online-only bank, which began in 1999. DA’s rate history for First Internet Bank began in November 2009. At that time, the 5-year CD was at 3.30% APY. The rate slowly fell until it reached its bottom of 1.60% APY in June 2012. From there the rate slowly increased until February 2016 when it reached 2.27% APY. The global economic turmoil of 2016 also had its effect on First Internet Bank. The 5-year rate fell to 1.92% APY by August 2016. The rate didn’t start rising again until 2017.

First Internet Bank has a history of offering higher CD rates than the popular online banks. Its 5-year CD recent peak of 3.40% APY was reached in December 2018. The rate began falling in January 2019.

The 5-year CD all-time low was actually reached on March 16, 2020. This was a day after the emergency Fed meeting which lowered the fed funds rate to its zero bound. First Internet Bank’s 5-year CD rate fell from 2.02% to 1.51% APY. Like a few other online banks, First Internet Bank decided to partially reverse large March rate cuts. On March 26, the Bank increased its CD rates. The 5-year rate increased 20 bps to 1.71% APY. The rate increased again on April 21, rising to 1.77% APY. Those rate hikes didn’t last long. The rate began to fall in May, and it’s now close to its March low. Last week, the Bank’s 5-year CD rate fell to 1.57% APY.

I annotated the DA rate history chart of First Internet Bank’s 5-year CD so you could clearly see the rate milestones.

First Internet Bank 5-Year CD Rate History

Future of CD Rates?

As you can see in all of the above charts, it took several years after the start of ZIRP in December 2008 before online 5-year CD rates reached their bottoms. Unfortunately, these new CD rate bottoms have been reached in less than three months after the return of ZIRP. As I mentioned at the start, this doesn’t bode well for future deposit rates, especially if the economy takes a long time to recover from the COVID-19 pandemic. The Fed will be in no rush to hike the fed funds rate. However, CD rates may rise before the Fed hikes rates if there are signs of a strong economic recovery. Until we see those signs, I’m afraid we shouldn’t expect any significant CD rate gains. The best we can hope for will be an occasional CD special. Keep an eye out for these specials in the DA 5-year CD rate table and in the bi-weekly CD rates survey.

Related Pages: 5-year CD rates, banking tools and data
Comments


milty
  |     |   Comment #2
That savings rates, and in particular CD rates, have fallen much faster during the 2020 ZIRP vs 2008 is a fact. The question is why? It would appear that banks have little reason to compete for deposit accounts.
deplorable_1
  |     |   Comment #8
This is exactly what I was expecting to happen with interest rates. A over reaction due to the sheer panic from this covid-19 crisis. I wouldn't be surprised to see .5% as the highest money market and/or savings rate before this turns around. The stock market surprisingly has already hit bottom and recovered up 7,000 points from the lows as of today. I think the same thing will happen with interest rates but it is a much slower and drawn out process taking years. We haven't even hit bottom yet I'm afraid.
GreenDream
  |     |   Comment #14
I don't see his comment as trying to stir up or provoke anyone. But that's just my insight into his comments. ;)
Robb
  |     |   Comment #19
The Fed has done a good job ring fencing off the stock market due to TINA. At least we saw a 1/3rd haircut in the stock market in March to position some exposure. Hopefully the Fed let's off the gas pedal soon given how far stocks have come the past 2 months. The Nasdaq is now only about 3% from its all time highs.
milty
  |     |   Comment #44
Too bad the Fed doesn't add stock inflation to its CPI. The Fed's TINA is anathema to deposit account (or bond) investors.
P_D
  |     |   Comment #3
How I know...how I know. I am in full cash combat mode with almost a third of my CD portfolio rolling over at less than half the yield it had a couple of months ago. I've got the war room set up and I'm not going out without a fight! Luckily my stocks are coming back with a vengeance. Had some nice gains over these past few months while my CDs crashed. Overall, I'm hanging in. Diversification is the key. 100 years later B school finally paid off!
Robb
  |     |   Comment #20
Hopefully we don't end up like Japan where both stocks and rates ended up in the tank for decades.
ichaelm
  |     |   Comment #4
Advancial CU 5 year CD's still yielding 2.16%, 50k minimum, rate available thru 5/31.
RichReg
  |     |   Comment #24
@ichaelm, #4 --
Stuck in USAlliance's 3.0% 1 yr deal from last year 'til 6/3;;
....please tell Advancial to keep those rates past 5/31...PLEASE !!!!!
blazer9
  |     |   Comment #25
Could you last minute the application and stretch the funding out a few days ?
EDIT  Sorry , must be funded at opening.
gregk
  |     |   Comment #33
I've 200K in 3% (or more) RCA's, just riding this out. No sweat.
Robb
  |     |   Comment #42
Gregk I may join you with some shorter term cash by opening up an RCA in the next month or two. Does anyone know if amazon gift card reloads act as a transaction for RCA purposes?
kcfield
  |     |   Comment #34
With CD rates being so low it is, in my view, a good time to pay down debts. For example, making an 5000.00 principal payment on a 3% mortgage, is like earning 3% on that 5000.00. If one makes an extra 5000.00 payment on a credit card with 9% interest rate; it is like earning 9% on that amount. The one caveat is that one should make sure they have adequate cash reserves (emergency savings) before significantly paying down debt. Looking at debt reduction options, is a way of expanding our traditional notion of "savings" beyond CDs and high yield savings accounts. These are my personal reflections as a saver; not intended to serve as financial planning advice, for which I am not credentialed or qualified.
gregk
  |     |   Comment #35
Is there anyone with significant debt on this blog? Maybe a few.
kcfield
  |     |   Comment #36
Greg: I suspect that many on this blog have mortgages that are not paid off even if they don't have other debt. My wife and I for example are debt free other than the mortgage. That has been one "nice" thing about the low savings interest rates: Our low interest mortgage (2.875% fixed) is now an attractive pay down.
deplorable_1
  |     |   Comment #47
I paid off my mortgage which was 5.875% with a 21 month 0% no fee balance transfer last time rates were at 0%. You can't do this directly but once you get the money into your bank account you can do whatever you want with it. This was way cheaper and easier than all the hassles and fees to refinance.
Shelby
  |     |   Comment #38
enjoying over 3.5 years left on my 4.25% CD at Founders, my TIAA 3.2% tax deferred, 4% 4year at Frontwave as well as my PSECU and GTE...no worries here as the rates are all playing out as expected.
pua
  |     |   Comment #40
Those who have tax-deferred annuities and are old enough to be forced to take minimum distribution requirements should give serious thought to exercising their option under recent CARES act to not take any RMD this year. In my own case (retired professor), I have TIAA whose RMD for 2020 would be about 31K; and my APR growth rate every year is 4%. So by not taking RMD this year I'll continue getting 4% on that 31K until I'm dead, at this time when CD rates are a lot lower than 4% and likely to stay low for years to come. There's no requirement to take a makeup RMD next year in addition to the regular RMD; that 31K will stay in my account and will have the effect of extending the number of years I keep getting payouts before the principal is exhausted, or increasing the payout to beneficiaries when I die. Since my beneficiary is a tax-exempt 501-C-3 foundation, that 31K will never get taxed if I die before I'm forced to take it in RMD.
Choice
  |     |   Comment #46
Uninsured with over $750k in the annuities...I think you got bigger problems than RMD. Nice that you are also thinking about a nice nest egg for a corporate entity...4% is a mirage for the next few years. My plan is to take (as I always do) the amount each year that puts me in the tax bracket I want to be in considering also QCDs to charities NOW...let them worry about their ROI
deskandchairs
  |     |   Comment #48
Choice, I agree that focus should be on tax rate and bracket, for those of us now old enough to be in RMD territory. Take the usual RMD (if it doesn't increase one's tax bracket), invest in something that will be taxed at capital gains rate, not ordinary rates, like deferred RMD. If Democrats win in November, ordinary income rates are going up.
Choice
  |     |   Comment #49
Probably of rates going up in future is greater than going down thus after tax funds are priority one. However, where we may differ is where to park those funds..going from insured to those with “capital gains rate” is a nonstarter...capital preservation/insured is required with no/low taxes
111
  |     |   Comment #58
Choice - you said "Uninsured with over $750k in the annuities." Not necessarily. Annuities are state-insured, as are life insurance policies. The rub is, each state can have a different maximum. No state insures less than $250K, while NY goes to $1 million.
Choice
  |     |   Comment #59
Thanks for clarification but not federally insured and given N.Y. CA debt issues that state insurance may be more at risk than last year or is it? Just think about that entire nest egg being in one place. In any forced sale, I doubt assets have been (currently) stated at the lower of market or cost values or has it? But a very nice nest egg!

You remind of GM Bk during the Big R . My long term warranty may have become worthless (at the end it wasn’t) but I did look to see what private insurance covered the GM warranty as backup...never needed it but it was there!
111
  |     |   Comment #60
Each state's annuity insurance limit is per-beneficiary, per-company, so having 3 annuities each worth $250K with 3 different companies, rather than 1 worth $750K with 1 company, would provide complete insurance in any state. But it is true that this wouldn't mitigate the risk of the state itself defaulting.
P_D
  |     |   Comment #50
Have to make one technical correction in your analysis and add one caveat that potentially complicates your conclusion.

"So by not taking RMD this year I'll continue getting 4% on that 31K until I'm dead, at this time when CD rates are a lot lower than 4% and likely to stay low for years to come. There's no requirement to take a makeup RMD next year in addition to the regular RMD; that 31K will stay in my account and will have the effect of extending the number of years I keep getting payouts before the principal is exhausted, or increasing the payout to beneficiaries when I die."

RMD is calculated as a percentage of the funds remaining in your retirement plan based on your life expectancy at the end of each year. So if you don't take the $31k this year, each subsequent year you will be forced to withdraw a portion of that $31k. The full $31k will only remain in your account until you start drawing it down next year, not for the life of your remaining balance in the fund.

The caveat is this. Whether or not you come out ahead is not yet known since we cannot predict what future tax rates will be or how long you will live. With the massive government redistributions going on right now, someone is going to have to pay for it all. And it's "rich" people like you that are in the crosshairs for higher taxes to do that.

It remains to be seen whether you will be better off taking the $31k now and paying what may end up being the lowest tax rates we will ever see again on it, or taking it out over the course of coming years at higher tax rates. It's an analysis that is more complex than it seems and involves variables that we cannot know in advance.
Choice
  |     |   Comment #51
Present value analysis is what’s normally used in financial circles...and based upon (always) certain assumptions 
P_D
  |     |   Comment #54
As to the tax rate assumption, I think it would be counter-intuitive to make the assumption that tax rates aren't going to rise after the most massive government giveaways in the history of the world times 10. What argument can you make to support the assumption that they will NOT rise? I can't see it.

Given that, you may well be better off taking out some or all of your tax deferred funds now rather than wait for the taxes to rise only too pay more taxes on your withdrawals later. And for most people, the older they get the more sensible this becomes. The value of the tax deferral (theoretically depending on how it is invested) becomes incrementally less as you age because you have fewer years for it to accumulate tax deferred.
Choice
  |     |   Comment #55
Works for me...and this year could be the final year of the 2017 tax cuts which would otherwise end in 5 years (for lower income folks :)). A footnote would be those 591/2 or older to consider IRA withdrawals before starting Soc Sec to minimize tax impact on Soc Sec benefits but starting the latter as may be required based upon factors beyond the scope of this post.  Stay safe
P_D
  |     |   Comment #56
After years of building models for such analyses, my view is that, in most cases decisions like this should be diversified just like any other investment related decision. In the face of unknowns diversification is the most prudent path.

In the case of retirement accounts that applies to both the nature of the investments, and the strategy for distribution. So, in essence it means take some of the money out now and leave some of it in. Based on that philosophy, I'd be tempted to take an RMD distribution this year even though it is not required because its not clear whether you will come out ahead or not by doing that.

There are always exceptions depending on individual circumstances. If, for example, you expect your income to be substantially lower in coming years, it might make sense to forgo the distribution this year. There is no one size fits all.

But the most important takeaway is that there is no "right" answer to decisions like this since it involves factors that you cannot currently value. All you can do is guess (or diversify).
Choice
  |     |   Comment #57
If one has planned and implemented a retirement strategy that is seemingly aimed to avoid market actions (a so-called crisis management plan) then a nest egg should have been put in place...pass GO and collect.... or start from.... As was alluded above by desk..the difference, in my view, between ordinary tax and capital gain tax rates, solely on that grounds, does not justify the risk of non-insured accounts. For others...have fun!
Bozo
  |     |   Comment #52
Borrowing a line from Robert Frost, most of my CDs have "miles to go before they sleep." So, I look at the bright side.

For example, my Navy Federal 5-yr after-tax CD will throw off 2.96% each month to my NFCU checking account for the next 4 1/2 years. My StateFarmBank and PenFed IRA CDs (yielding roughly 2.3% on average) will run until 2024. My INOVA IRA CD won't mature until 2025, and it's yielding 3.5%. Yields on IRA CDs maturing in 2021 (at Patelco and Alliant) have fallen, but not as much as I would have suspected they might. Credit unions seem more eager to bid for our business than banks.

Meanwhile, as others have noted, balanced portfolios of stocks and bonds have certainly recovered from the panic low of March 23. The standard advice of Jack Bogle to "stay the course" has proved true once again.

Best regards and stay safe,

Bozo
Cracker
  |     |   Comment #53
Most of my money is in Ally and Live Oak banks. Any CDs with Ally are being converted to No Penalty CDs when they mature. Live Oak CDs are being closed and the proceeds are going into the savings account. This keeps the funds liquid and the savings rate isn't much lower than their current CD rates, so no need to lock the funds up.

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