CD Rate Trends, Week of January 30: Rates hold

The top rates for nationwide CDs showed almost no movement this week

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The Federal Reserve is slated to announce its latest rate decision Wednesday afternoon, and with that news pending, most banks and credit unions kept their certificate of deposit (CD) rates unchanged this past week. Only the 3-month and 18-month terms showed any movement. In general, rates have remained relatively flat since mid-December.

CD Term  Last Week's Top National Rate This Week's Top National Rate  Change
3 months 4.05% APY 4.10% APY + 0.05%
6 months  5.00% APY 5.00% APY No change
1 year  4.90% APY  4.90% APY  No change
18 months 5.12% APY 5.00% APY - 0.12%
2 years  4.86% APY 4.86% APY No change
3 years  4.86% APY 4.86% APY  No change
4 years 4.75% APY 4.75% APY No change
5 years  4.63% APY  4.63% APY  No change
10 years 4.40% APY 4.40% APY No change
For a list of the top 15-20 nationwide rates in any term, clicking on the desired term length above.

In December, the Federal Reserve announced its seventh rate hike of 2022. After four massive 0.75% increases in a row, the central bank's last increase for the calendar year was for a slightly lesser 0.50%. Though still considered a large increment for the Fed, the slight easing of the increase is due to indications that inflation is slightly subsiding.

The continued ratcheting up of the federal funds rate catapulted deposit interest rates by orders of magnitude throughout 2022. In fact, many of this week's top CD yields are sitting four times higher—or more—than what the best certificates were paying at the start of the year. Take 3-year CDs, for example. In December 2021, the highest rate on a nationally available 3-year CD was 1.11%. Today, the top-paying 36-month certificate boasts a rate of 4.86%.

The FDIC published its latest monthly national averages for major CD terms on January 17. The data show that over the prior month, national averages rose a notable 11-27 percent. But that also indicates a slowing pace of increases, as December's averages registered 20-40 percent higher than the previous month.

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 has eased a bit, the Fed has backed off on the pace of its increases, announcing a 0.50% increase at the December 14 meeting. Though decisions are made one at a time at each meeting based on the latest economic indicators, the Fed has projected that additional increases are likely in 2023. The next Fed rate announcement will be made February 1.

What Is the Predicted Trend for CD Rates?

The Fed's seven rate increases of 2022 are likely not the end of this rate hike campaign. Raising rates is a way to fight inflation, and with U.S. inflation still running high, the Fed expects to implement additional rate hikes into 2023. It is currently forecasted, however, that there may only be 2-3 more hikes and that they will be for more modest increments of 0.25.

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 rate increases likely, one could reasonably predict that CD rates will rise a bit further in 2023. It is also considered possible, however, that the Fed will begin reducing rates by the end of 2023.

In light of this, it may make sense to consider locking in the best CD rates you can find in the coming month or two, as the federal funds rate may peak during that time, and could actually reverse course and come down later this year. You could also consider special "raise your rate" or "step-up" CDs, which allow you to activate one rate increase on your existing CD should rates reach higher during your term.

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.