Banks boosting rates on long-term CDs

By Dow Jones Newswires-Wall Street Journal
Posted March 7 at 6:38 a.m.

Attention, beleaguered savers: Banks across the nation, including Bank of America Corp., Citigroup Inc. and Northern Trust Corp., are bumping up rates on longer-term certificates of deposit.

In general, rates had fallen since the financial crisis. “Last week was the first broad-based move higher in quite some time,” says Greg McBride, senior financial analyst at

The changes partly reflect the recent rise in yields on longer-term Treasurys amid expectations of higher inflation. Before the turmoil in Libya and Egypt broke out, the “yield curve,” or the gap between two- and 10-year Treasury yields, had widened to near-record highs, and it remains steep by historical standards. For banks, a steeper curve makes it easier to offer higher rates on longer-term CDs.

Another driver: More businesses and consumers are looking to take out long-term loans, spurring banks to collect more deposit money to lend out. “A lot of what we’re seeing on long-term CDs is an attempt by banks to lock in low-cost funds for a period of several years,” Mr. McBride says.

At Dime Community Bancshares Inc.’s Dime Savings Bank of Williamsburgh, for example, more loan customers — mainly people who own multifamily apartment buildings — are looking to lock in fixed rates for longer periods of time, says Terence Mitchell, executive vice president and chief retail officer.

Late last month, Bank of America boosted five-year CD yields to 2 percent in markets outside of California from average rates of 1.20 percent, while bumping up rates in California to 2.25 percent from 2 percent. Citigroup raised rates on its five-year CDs in California and Nevada to 2 percent from 1.75 percent, while Northern Trust’s rates on its three- to five-year CDs have jumped about 0.5 point since November.

A host of smaller banks and credit unions have nudged up rates in recent weeks as well. Kaiser Federal Bank of Covina, Calif., owned by Kaiser Federal Financial Group Inc., raised its five-year CD rate to 3 percent from 2.75 percent, with a minimum deposit of $10,000. Mitsubishi UFJ Financial Group Inc.’s Union Bank N.A. increased its five-year CD rate by 0.50 percent to 2.5 percent on Feb. 18. Navy Federal Credit Union earlier this week boosted its seven-year CDs to 3.05 percent and 3.10 percent, respectively, from 2.85 percent and 3.00 percent, its first rise since October 2008. Dime Savings Bank last week raised rates on its seven-, five- and four-year CDs to 3.10 percent, 2.50 percent and 2 percent, from 3 percent, 2.35 percent and 1.90 percent.

To be sure, rates aren’t rising across the board: Even as they boost long-term yields, many banks are trimming shorter-term ones, in part because of expectations that the Federal Reserve won’t raise short-term interest rates for a while. Dime Savings, for example, dropped the rate on its one-year CD to 0.70 percent from 0.75 percent last week, on the same day it raised rates on other CDs.

Savers who lock in now run the risk of missing out on even higher yields down the road. Still, it might make sense to buy now and pay early withdrawal penalties later if rates jump significantly. Even with the penalty — typically six months’ of forgone interest — some savers could earn more than they otherwise would on short-term CDs.

For example, a person who invested $100,000 in a five-year CD yielding 2.5 percent and redeeming it three years early, forfeiting the most recent six months of interest, would earn $750 more than if he had invested the same amount in a two-year CD yielding 1.5 percent, Mr. McBride says.

Just be sure to read the terms carefully: some banks reserve the right to refuse savers’ requests to cash in CDs early, Mr. McBride notes. And some banks charge steep penalties. Savers who cash in one of Dime Savings Banks’ longer-term CDs, for example, can lose as much as two years’ worth of interest, while those who make early withdrawals from five-year CDs from Navy Federal could lose up to one year.

Savers can generally find even better rates if they make a large deposit, open another account or set up an Individual Retirement Account CD. At J.P. Morgan Chase & Co., savers who make big deposits and also have or open a checking account qualify for higher rates. In Chicago, those who deposit at least $10,000 and have or open a checking account will earn 2 percent on a five-year CD — better than the 1.25 percent rate for savers who open a five-year CD with a minimum of $1,000 and don’t have a Chase checking account. Navy Federal also has raised the rates on its seven-year IRA CD twice this year.

Scott Marberblatt of Swampscott, Mass., recently locked in a five-year CD at Banco Santander S.A.’s Sovereign Bank and a “special” 10-year CD at Pentagon Federal Credit Union, which were paying 3 percent and 5 percent, respectively. He figures that even if he holds the CDs for several years and breaks them before maturity, he would still make more than what he could otherwise earn on shorter-term CDs — even with the early withdrawal penalties.

“Because I’m more or less retired, I’m trying to maximize what I can make in the bank,” says the 49-year-old Mr. Marberblatt. “But now that I’m going longer, I am keeping an eye out on the early withdrawal penalties.”

Where to Find the Deals

Amid a rise in long-term market rates, banks and credit unions are starting to boost rates on longer-term certificates of deposit. Here are some recent moves:

FIRM: Bank of America (

OFFER: Recently boosted five-year CDs to 2 percent in most markets from average rates of about 1.2 percent. Minimum opening deposit is $1,000.

FIRM: Citibank (

OFFER: Recently raised rates in California and Nevada on five-year CDs to 2 percent from 1.75 percent. Minimum opening deposit is $1,000.

FIRM: Dime Savings Bank (

OFFER: Recently raised rates on its 48-, 60- and 84-month CDs to 2 percent, 2.5 percent and 3.10 percent, respectively. Minimum opening deposit is $500.

FIRM: Navy Federal Credit Union (*

OFFER: Recently bumped up rates on its seven-year standard and IRA CDs to 3.05 percent and 3.10 percent, respectively, from 2.85 percent and 3 percent, with opening deposits of $20,000. Yields drop by 0.1 point for minimum deposits of $1,000.

FIRM: Union Bank (

OFFER: Recently raised yields on its five-year CDs by 0.5 percent to 2.5 percent. Minimum opening deposit is $350.

*Must have a connection to the military to qualify for membership.

Source: WSJ research

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  1. jack(me) March 7 at 8:57 a.m.

    About time, but they would still have to go up at least another 1.5% to get me interested.

  2. Brian March 7 at 6:38 pm

    Wow….2 – 3% for the privilage of locking up your money for a few years!!! Where to I sign up!!! F**king crooks.