CD Rate Trends, week of August 1, 2022: prices are rising

CD term Last week’s highest national rate This week’s highest national rate Change
6 months 3.01% APY 3.01% APY No change
1 year 2.70% APY 3.00% APY +0.30
2 years 3.00% APY 3.50% APY +0.50
3 years 3.25% APY 3.55% APY +0.30
5 years 3.64% APY 3.65% APY +0.01

For the second time in six weeks, the Federal Reserve raised Federal Funds interest rates by an unusually large three-quarters of a percentage point, on top of two previous hikes this spring. As a result, CD rates have risen dramatically since March and are likely to continue rising over the next year.

CD rates since late 2021 have not only risen, they’ve multiplied, with many of this week’s top rates being more than three times what the best CDs paid just six months ago. Take, for example, 3-year CDs. The highest percentage on a nationally available 3-year CD was 1.11% at the end of December. Today, the 36-month highest paying certificate has a rate of 3.55%.


Note that the “top rates” listed here are the highest nationally available rates that Investopedia has identified in its daily rate survey of hundreds of banks and credit unions. This is quite different from the national average, which includes all banks that offer a CD with that term, including many large banks that pay a pittance in interest. For example, the national averages are always quite low, while the top rates you can find by shopping around are often 10 to 12 times higher.

The Federal Reserve and CD Rates

Every six to eight weeks, the Federal Reserve’s interest-setting committee holds a two-day meeting. One of the key outcomes of the eight meetings during the year is the Fed’s announcement as to whether it will raise, lower or leave Federal Funds interest rates unchanged.

The federal funds rate does not directly dictate what banks will pay customers for CD deposits. Instead, the federal fund rate is simply the rate banks pay each other when they lend or lend their excess reserves to each other overnight. However, when the Federal Funds interest rate is slightly above zero, it gives banks an incentive 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 avert a financial disaster. And for a full two years, the federal fund rate remained at 0%.

But in March 2022, the Fed began a 0.25% rate hike, saying it would be the first of many. At its May 2022 meeting, the Fed already announced a second hike, this time of 0.50%. But both increases were just a prelude to the larger 0.75 percentage point increase announced by the Fed in mid-June, and then another 0.75 percentage point increase on July 27.

Before the Fed makes a rate change, there is usually a reasonable understanding of what they will disclose before actually announcing it. As a result, many banks and credit unions are starting to implement anticipatory rate hikes, while others are choosing to wait for the rate hike to cement.

The next Fed meeting announcement will be made on September 21.


What is the predicted trend for CD rates?

The Fed rate hikes in March and May were just the beginning. Raising interest rates is one way to combat inflation, and as inflation in the US is currently soaring, the Fed is publicly planning a series of numerous rate hikes through 2022 and probably 2023.

In particular, the Fed is expected to initiate two more major rate hikes and then perhaps three more smaller hikes before the end of the year. That could push the Federal Funds rate from its current level of 0.75% to 2.5% or even higher.

While the Fed rate does not affect long-term debt, such as mortgage rates, it does have a direct impact on the direction of short-term consumer debt and deposit rates. So with several hikes still to be expected in 2022, you should expect CD rates to rise significantly higher this year.

That doesn’t mean you should avoid locking a CD now. But it does mean that you should consider shorter-term certificates so that you can take advantage of higher rates that will become available in the not-too-distant future. Another option is to consider a special type of CD, also known as a “raise your rate CD” or “step-up CD,” which allows you to activate one rate increase on your existing CD if rates go significantly higher.

Disclosure of rate collection method

Every business day, Investopedia tracks the price data of more than 200 banks and credit unions that offer CDs to clients across the country and determines the daily ranking of the highest paying certificates in each key period. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the minimum initial deposit of the CD must not exceed $25,000.

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