| CD runtime | National high in the last week | This week’s highest national rate | change |
|---|---|---|---|
| 3 months | 2.45% APR | 3.00% annual interest | + 0.55% |
| 6 months | 3.55% APR | 3.58% APR | + 0.03% |
| 1 year | 3.85% APR | 4.00% annual interest | + 0.15% |
| 18 months | 4.00% annual interest | 4.00% annual interest | No change |
| 2 years | 4.11% APR | 4.11% APR | No change |
| 3 years | 4.22% APR | 4.22% APR | No change |
| 4 years | 4.32% APR | 4.32% APR | No change |
| 5 years | 4.42% APR | 4.42% APR | No change |
The Federal Reserve’s September hike in the federal funds rate was its fifth hike this year and the third straight 0.75% hike, marking a historic big move for the Fed. As a result, CD rates have increased dramatically since March and are likely to continue increasing into 2023.
Interest rates have not only risen since late last year, they have multiplied, with many of this week’s prime CD yields being three or nearly four times higher than the best certificates in early 2021. Take 3 year CDs for example. The highest rate on a national 3-year CD was 1.11% at the end of December. Today, the highest-paying 36-month certificate has a rate of 4.22%.
Note that the “top” rates quoted here are the highest rates available nationwide, as identified by Investopedia in its daily interest rate research of hundreds of banks and credit unions. This differs significantly from the national average, which includes all banks that offer a CD with this term, including many large banks that pay a paltry amount of interest. So the national averages are always quite low, while the top rates you can find while shopping are often 10 to 15 times higher.
The Federal Reserve and CD rates
The Federal Reserve’s Interest Rate Setting Committee holds a two-day meeting every six to eight weeks. One of the key outcomes of the eight meetings throughout the year is the Fed’s announcement of whether it will raise the federal funds rate up, down, or remain unchanged.
The Federal Funds Rate does not directly dictate what banks pay customers for CD deposits. Instead, the federal funds rate is simply the rate banks pay each other when they lend or borrow each other’s excess reserves overnight. However, when the federal funds rate is slightly above zero, it provides an incentive for banks to view consumers as a potentially cheaper source of deposits, which they then seek 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% to help the economy stave off financial disaster. And for a full two years, the federal funds rate stayed at that zero level.
But in March 2022, the Fed initiated a 0.25% rate hike, hinting that it would be the first of many. At the May 2022 meeting, the Fed announced a second hike, this time by 0.50%. But both hikes were just a prelude to three major hikes of 0.75 percentage points announced by the Fed in mid-June, late July and most recently on September 21st.
The Fed’s next scheduled rate announcement is on November 2nd.
What is the predicted trend for CD rates?
The Fed’s five rate hikes this year are still just the beginning. Rate hikes are one way to fight inflation, and with US inflation still exceptionally high, the Fed is publicly planning to make more rate hikes through 2022, and likely into 2023.
While the Fed rate doesn’t affect long-term debt like mortgage rates, it does directly affect the direction of short-term consumer debt and deposit rates. With more rate hikes likely to come, one could reasonably predict that CD rates will continue to rise this year and next.
That doesn’t mean you should avoid including a CD now. But it’s worth considering shorter-dated certificates so you can take advantage of higher interest rates that will become available in the not-too-distant future. Or consider “raise your rate” or “step-up” CDs, which allow you to activate a rate increase on your existing CD when rates increase significantly.
Disclosure of Tariff Collection Methodology
Every business day, Investopedia tracks price data from more than 200 banks and credit unions that offer CDs to customers nationwide, and provides daily rankings of the best paying certificates in each major term. To qualify for our listings, the institution must be federally insured (FDIC for banks, NCUA for credit unions) and the CD’s minimum initial deposit must not exceed $25,000.
