|CD term||Last week’s best national rate||The highest national rate this week||Change|
|3 months||4.25% APY||3.35% APY||-0.90%|
|6 months||5.00% APY||5.00% APY||No changes|
|1 years||4.84% APY||4.63% APY||-0.21%|
|18 months||4.61% APY||4.61% APY||No changes|
|2 years||4.94% APY||5.00% APY||+0.06%|
|3 years||4.99% APY||4.67% APY||-0.32%|
|4 years||4.99% APY||4.76% APY||-0.23%|
|5 years||4.99% APY||4.97% APY||-0.02%|
|10 years||4.25% APY||4.25% APY||No changes|
The Federal Reserve’s Nov. 2 hike in the federal funds rate was its sixth hike this year and fourth consecutive hike of 0.75%, which is a historically high increase for the Fed. CD rates have risen sharply since March and are likely to rise further in 2023.
Rates since late last year have not only increased, they have multiplied, with many of this week’s best CD yields coming in at four to five times what the best certificates were paying in early 2021. Take the 3 year CD. , For instance. The highest December rate on a nationally available three-year CD was 1.11%. Today, the highest paying 36-month certificate boasts a rate of 4.67%.
The most recent FDIC monthly reading of national averages across CD terms was released today. The November data show that in the last month the average rate has risen in each quarter, in many cases by two-tenths of a point or more.
Note that the “cap rates” quoted here are the highest nationwide available rates that Investopedia identified in its research of daily rates across 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 of interest. Therefore, the national averages are always quite low, while the maximum rates you can discover while shopping are often 10 to 15 times higher.
Federal Reserve and CD rates
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 over the course of the year is the Fed’s announcement on raising, lowering or changing the federal funds rate.
The federal funds rate does not directly determine what banks will pay customers for CD deposits. Instead, the federal funds rate is simply the rate that banks pay each other when they borrow or lend each other 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.
Early in the pandemic, the Fed announced an emergency rate cut to 0% as a way to help the economy avoid a financial meltdown. 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 its May 2022 meeting, the Fed had already announced a second hike, this time by 0.50%. But both hikes were just a prelude to four major 0.75 percentage point hikes announced by the Fed 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 expected 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 still exceptionally high, the Fed is publicly planning to implement further rate hikes through 2022 and possibly 2023.
While the Fed rate doesn’t affect long-term debt like mortgage rates do, it directly affects the direction of short-term consumer debt and deposit rates. So, with the likelihood of further hikes to come, CD rates could reasonably be expected to rise further this year and next.
That doesn’t mean you should avoid locking a CD now. But short-term certificates are worth considering so you can capitalize on higher rates that will be available in the not-too-distant future. Or consider “increase your rate” or “step-up” CDs, which allow you to trigger a rate increase on your existing CD if the rates go up significantly.
Disclosure of the rate collection methodology
Every business day, Investopedia tracks rate data from more than 200 banks and credit unions offering CDs to customers nationwide and determines daily rankings of the highest-paying certificates in each major period. To qualify for our listings, the institution must be federally insured (FDIC for banks, NCUA for credit unions) and the minimum initial CD deposit must not exceed $25,000.