Fed Hikes, Loan Demand Boost CD Yields to Five-Year Highs

Certificate of deposit yields have hit five-year highs as Federal Reserve hikes and soaring loan demand boost rates paid on savings.

Bankrate.com, which tracks CDs, found the national average yield for a one-year CD has reached 5.32%, up from 4.38% a year earlier, it said Friday.

Some banks that advertise on the Bankrate.com Web site are promoting one-year yields of more than 7%. Five-year yields now average 6%, up from 4.61% a year ago, with some banks advertising 7.3%.

The Federal Reserve has raised a key short-term interest rate, the federal funds rate, five times in the last year. The latest boost on March 21 brought the federal funds rate to 6%, its highest level in nearly five years.

Although CD rates tend to lag Fed moves, this interest rate boost translated quickly into higher yields as banks scrambled to attract cash to make loans in a booming economy.

Among top current rates, USAccess Bank of Louisville, Ky., offers a 7.05% yield on a one-year CD with a minimum $500 deposit, and Key Bank USA of Albany, N.Y., offers a 7.41% yield on a five-year CD with a $5,000 minimum.

Other banks with high rates on one-year CDs include Bank Caroline of Travelers Rest, S.C., which has a 7% rate and a $500 minimum, and Claritybank.com of Ulvalde, Texas, which has a 7% rate and $1,000 minimum.