Average CD Rates Rise Again, But Is the Party Almost Over?

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Average yields for most certificates of deposit rose again, according to data released this morning by the Federal Deposit Insurance Corporation (FDIC). But signs of a pullback are appearing, as the average rate for 3-month certificates fell a lot, and was flat for 5-year certificates.

The new averages, which reflect national bank rates in April, end what was an 11-month run of monthly rate increases across every CD term from three months to five years. And moves from the Federal Reserve may signal the party will end soon for those who have been enjoying rising CD rates.  

Six-month certificates saw the biggest gains in the latest reading, rising a notable 16 basis points to 1.19% APY. The next biggest gainer was the 1-year average, which climbed only five basis points to 1.59% APY. On the downside, the 3-month average declined by 16 basis points, to 0.62% APY.

CD Term April FDIC Average May FDIC Average Monthly Change (percentage points)
3 months 0.78% 0.62% - 0.16
6 months 1.03% 1.19% + 0.16
1 year 1.54% 1.59% + 0.05
2 years 1.43% 1.45% + 0.02
3 years 1.34% 1.36% + 0.02
4 years 1.29% 1.30% + 0.01
5 years 1.37% 1.37% No change

In any term, however, smart CD shoppers can earn more than three times the national average—and often much more—by choosing from our daily rankings of the best-paying nationwide CDs. Compared to the 1-year national average of 1.59% APY, for instance, the top 1-year rate in our rankings is 5.25% APY. And a rate of at least 5.00% APY is available in every term from three months to two years, with longer terms having a top rate in the upper 4% range.

Today’s CD Rates Are at Record Highs

CD rates have skyrocketed since March 2022, when the Federal Reserve implemented what was its first rate hike after dropping the federal funds rate to zero at the start of the pandemic. Since that first post-pandemic increase, the Fed has hiked rates nine more times in a bid to tame decades-high inflation, with the latest increase coming almost two weeks ago.

Over the course of those 10 rate increases, the federal funds rate has risen to 5.00-5.25%. It’s a near-record level for the last 20 years, with the only period registering higher being June 2006 through September 2007, when the Fed rate held at 5.25-5.50%. 

As a result, bank deposit rates are also at their highest levels since at least 2007. You can see in the graph below that prior to the Federal Reserve’s March 2022 rate hike, CD rate averages sat in a meager range from 0.06% to 0.29% APY.

In contrast, the May release shows averages ranging from 0.62% to 1.59% APY, representing multi-fold increases of five to 10 times, depending on the CD term.

Will Today’s Record CD Rates Climb Further?

The FDIC’s May release is based on rates offered across all FDIC banks as of April 28, 2023. That means the averages were calculated before the Fed’s latest 0.25% rate increase, which was implemented May 3.

On the one hand, this means the lagging average CD rates could edge up a bit next month as they catch up with the now higher federal funds rate. But partially mitigating this is the Fed’s indication in its May 3 announcement that it could end or at least pause its rate hikes at its June meeting. It’s the first time in this rate campaign that the Fed has signaled this possibility.

This means we’re potentially headed toward a rate plateau, with the further possibility that the Fed could actually lower rates later in the year. When banks and credit unions see this potential rate landscape, they step off the gas on rate increases, especially for longer-term CDs that promise a locked return far into the future.

That said, nothing is ever certain about the Federal Reserve’s future moves, as it makes each rate decision based on the up-to-the-minute economic indicators and financial news. And though at the time of this writing, more than 70% of interest rate futures traders predict the Fed will hold rates steady in June, the remaining minority are betting on a further quarter-point increase.

As for potential rate decreases, while 20-25% of Fed watchers currently predict a reduction as early as the July meeting, the Fed sent a different message yesterday, with Atlanta Fed president Raphael Bostic saying he doesn't see rates declining this year.

These forecasts change constantly, as it’s far too soon to make reliable guesses on what will happen to the federal funds rate over the next several months. But since it’s a reasonable bet that we’re at or near the tail-end of the Fed’s increase campaign, it’s wise to lock in a great CD rate from our daily rankings of the best rates soon, rather than miss out because you waited for the perfect peak.

Article Sources
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  1. FDIC. National Rates and Rate Caps, May 15, 2023.

  2. Federal Reserve. Open Market Operations.

  3. FDIC. National Rates and Rate Caps, Previous Rates.

  4. Federal Reserve Board. Press release, May 3, 2023.

  5. CME Group. CME FedWatch Tool.

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