The top rate on nationally available certificates of deposit (CDs) was stagnant in almost every term this week, with only the 18-month term seeing a very minor uptick. On Wednesday, the Federal Reserve will announce its last rate move of the year, which is widely expected to be a 0.50% hike.
|CD Term||Last Week's Top National Rate||This Week's Top 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||5.00% APY||5.00% APY||No change|
|18 months||4.85% APY||4.90% APY||+ 0.05%|
|2 years||5.00% APY||5.00% APY||No change|
|3 years||4.60% APY||4.60% APY||No change|
|4 years||4.65% APY||4.65% APY||No change|
|5 years||4.75% APY||4.75% APY||No change|
|10 years||4.25% APY||4.25% APY||No change|
The Federal Reserve's November 2 hike of the federal funds rate was its sixth increase this year, and the fourth consecutive 0.75% increase, which is a historically large increment for the Fed. As a result, CD rates have bolted dramatically higher since March, and are likely to creep higher into 2023.
CD rates since the end of last year haven't just climbed, they've multiplied, with many of this week's top CD yields sitting four times higher—or more—than what the best certificates were paying at the start of 2021. Take 3-year CDs, for example. December's highest rate on a nationally available 3-year CD was 1.11%. Today, the top-paying 36-month certificate boasts a rate of 4.60%.
The FDIC's most recent monthly reading of national averages across CD terms was published November 21. The data show that over the previous month, national averages rose in every term, in many cases by two-tenths of a point or more.
Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 10 to 15 times higher.
The 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 primary outcomes of the eight gatherings throughout the year is the Fed's announcement on whether they are moving the federal funds rate up, down, or 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 banks pay each other when they borrow or lend their excess reserves to each other overnight. However, when the federal funds rate is something higher than zero, it provides an incentive for banks to look to 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 stave off a financial disaster. And for a full two years, the federal funds rate remained at that zero level.
But in March 2022, the Fed initiated a 0.25% rate increase and indicated it would be the first of many. By the May 2022 meeting, the Fed was already announcing a second increase, of 0.50% this time. But both of those of hikes were just a prelude to four larger 0.75 percentage point hikes the Fed announced in mid-June, late July, mid-September 21, and November 2.
With the latest economic data indicating that inflation, though still high, has eased a bit, forecasters are currently placing 80% odds that the Fed's December 14 rate hike will be for a lesser 0.50% increment.
What Is the Predicted Trend for CD Rates?
The Fed's five rate increases this year are still just the beginning. Raising rates is a way to fight inflation, and with U.S. inflation still running exceptionally hot, the Fed is publicly planning to implement additional rate hikes through 2022 and likely into 2023.
While the Fed rate doesn't impact 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 coming, one could reasonably predict that CD rates will rise further this year and next.
That doesn't mean you should avoid locking in a CD now. But it does make it worth considering shorter-term certificates so that you'll be able to capitalize on higher rates that become available in the not-too-distant future. Or consider "raise your rate" or "step-up" CDs, which allow you to activate one rate increase on your existing CD if rates go considerably higher.
Rate Collection Methodology Disclosure
Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, 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.