|Duration of the CD||Last week’s highest national rate||This week’s highest national rate||change|
|3 months||3.35% APY||3.35% APY||no change|
|6 months||5.00% APY||5.00% APY||no change|
|1 year||4.63% APY||4.85% APY||+0.22%|
|18 months||4.61% APY||4.85% APY||+0.24%|
|2 years||5.00% APY||5.00% APY||no change|
|3 years||4.67% APY||4.67% APY||no change|
|4 years||4.76% APR||4.69% APY||-0.07%|
|5 years||4.97% APY||4.80% APY||-0.17%|
|10 years||4.25% APY||4.25% APY||no change|
The Federal Reserve’s November 2 increase in the federal funds rate was its sixth increase this year and the fourth consecutive increase of 0.75%, which represents a historically significant increase for the Fed. As a result, CD rates have risen sharply since March and are likely to rise through 2023.
Rates since the end of last year have not only risen, but multiplied, with many of this week’s top CD yields standing at four times, or more, what the best certificates were paying at the start of 2021. Year-end CDs, e.g. . December’s highest rate on a 3-year CD available nationally was 1.11%. Today, the highest paying 36-month certificate has a rate of 4.67%.
The FDIC’s most recent monthly reading of national averages in CD terms was released last week. The November data shows that over the last month the national average has risen in all terms, in many cases by two-tenths of a point or more.
Please note that the “highest rates” quoted here are the highest rates available nationally that Investopedia has identified in its daily rate research at hundreds of banks and credit unions. This is very different from the national average, which includes all banks that offer a CD with that term, including many large banks that pay a pittance in interest. So the national averages are always quite low, while the highest rates you can get by shopping are often 10-15 times higher.
The Federal Reserve and the types of CDs
Every six to eight weeks, the Federal Reserve’s rate-setting committee holds a two-day meeting. One of the main outcomes of the eight meetings throughout the year is the Fed’s announcement on whether they are raising, lowering or leaving the federal funds rate unchanged.
The federal funds rate does not directly dictate what banks will pay customers for CD deposits. Instead, the federal funds rate is simply the rate that banks pay each other when they lend or lend their excess reserves overnight. However, when the federal funds rate is anything above zero, it provides an incentive for banks to view consumers as a potentially cheaper source of deposits, which they then try to attract by raising savings, money market, and CD rates.
At the start of the pandemic, the Fed announced an emergency rate cut to 0% as a way to help the economy avoid financial disaster. And for two full years, the federal funds rate stayed at that zero level.
But in March 2022, the Fed initiated a 0.25% rate hike and indicated it would be the first of many. At the May 2022 meeting, the Fed already announced a second increase, of 0.50% this time. But the two increases were only a prelude to four increases larger than 0.75 percentage points that the Fed announced in mid-June, late July, mid-September 21 and November 2.
The Fed’s next regularly scheduled rate announcement will be made on December 14.
What is the predicted trend for CD rates?
The Fed’s five rate hikes this year are still just the beginning. Raising rates is one way to fight inflation, and with US inflation remaining exceptionally high, the Fed is publicly planning to implement additional rate hikes through 2022 and likely into 2023.
While the Fed rate does not affect long-term debt like mortgage rates, it does directly influence the direction of short-term consumer debt and deposit rates. So with more hikes likely, one can reasonably expect CD rates to rise further this year and next.
That doesn’t mean you should avoid locking a CD now. But it’s worth considering short-term certificates so you can take advantage of the higher rates that will be available in the not-too-distant future. Or consider “up your rate” or “step up” CDs, which allow you to activate a rate increase on your existing CD if rates are significantly higher.
Disclosure of the fee collection methodology
Every business day, Investopedia tracks rate data from more than 200 banks and credit unions that offer CDs to customers across the country and determines the daily ranking of the highest-paying certificates in each major period. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions) and the minimum initial CD deposit must not exceed $25,000.