The FDIC instituted a new rule at the beginning of this year that many people probably don’t know about and it affects the CD rates you can get. The FDIC has put a restriction on under capitalized banks CD rates so that they can’t exceed levels that they deem acceptable. This level is knows as the FDIC weekly national rate.
What’s worse for consumers is that there are even banks that aren’t being forced to stay under these levels that are deciding to stay under these rates anyways.
This is a very strange outcome to see. After all, why would a bank willingly lower its CD rates when it doesn’t have to?
It’s hard to say whether this is a case of too much government regulation or not. Everyone likes to see higher deposit rate accounts, but if your bank fails those great rates aren’t going to do you very much good. Especially for CDs because the FDIC has to pay what’s in the account, not what you were due at the end of the term. So it really doesn’t make sense to gamble on a certificate of deposit.
Banks that are under these regulations have come up with creative ways to make their CDs more popular. For example some banks are offering to drop the early withdrawal penalty on a 2 year CD after only 1 year. Adding in these types of perks allows these banks to remain competitive despite the lower CD rates at banks.
Credit unions do not fall under the control of the FDIC so they continue to make their own rates for deposit accounts and currently credit unions lead the way in national CD interest rates. So you can still find a good rate for your money but you probably have to do a little more work than just opening an account at your local bank.