CD Rate Trends, Sunday November 7: Higher rates

The term CDLast Sunday’s Top National RateThis Week’s Top National SpeedChange
3 months3.00% APY4.25% APY+1.25%
6 months3.75% APY4.25% APY+0.50%
1 year 4.35% APY4.84% APY+0.49%
18 months4.60% APY4.60% APYNo change
2 years4.35% APY4.94% APY+0.59%
3 years4.50% APY4.99% APY+0.49%
4 years4.32% APY4.99% APY+0.67%
5 years4.42% APY4.99% APY+0.57%
10 years3.50% APY4.00% APY+0.50%
For a list of top 15-20 national rates in any term, click on the desired term length above.

The Federal Reserve’s November 2 hike in the federal funds rate was the sixth increase this year, and the fourth consecutive 0.75% increase, which is a big increase for the Fed. As a result, CD rates have been dramatically higher since March, and are likely to rise again into 2023.

Rates since the end of last year have not only increased, they have multiplied, with many of the top CD results this week sitting four times higher-or more-than what the best certificates are paying at the beginning of 2021. Take 3- CD years, for example. December’s highest rate on a nationally available 3-year CD is 1.11%. Today, the highest paying 36-month certificate has a rate of 4.99%.

Note that the “top rate” quoted here is the highest national rate identified by Investopedia in its daily rate research at hundreds of banks and credit unions. This is much different from the national average, which includes all banks that offer CDs with that term, including many large banks that pay a pittance in the quarter. Therefore, the national average is always quite low, while the high prices you can unearth by shopping around 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 throughout the year was the Fed’s announcement of whether they would move 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 higher than zero, it provides an incentive for banks to see consumers as a potentially cheaper source of deposits, which they then try to attract to savings, money markets, and CD cost.

At the start of the pandemic, the Fed announced a emergency speed cut to 0% as a way to help the economy stave off financial disaster. And for two full years, the federal funds rate remained at that zero level.

But in March 2022, the Fed initiated a rate increase of 0.25% and indicated that it would be the first. By the May 2022 meeting, the Fed has announced a second increase, from 0.50% this time. But both of the hikes were just a prelude to four larger 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 December 14.

What is the Predicted Trend for CD Rates?

The Fed’s five rate hikes this year are just the beginning. Raising rates is the way to go against inflationand with US inflation still running exceptionally hot, the Fed is planning to implement additional rate hikes through 2022 and possibly into 2023.

While the Fed rate doesn’t affect long-term debt like mortgage rates, it directly affects the direction of short-term consumer debt and deposit rates. So with more hikes likely to come, one can reason predict that CD rates will rise further this year and beyond.

That doesn’t mean you should avoid locking CDs now. But it is worth considering short-term certificates so that you can capitalize on the higher prices available in the not-too-distant future. Or consider “raising your rate” or “step-up” CD, which allows you to activate a rate increase on your existing CD if the rate rises considerably higher.

Disclosure of Rate Collection Methodology

Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers across the country and determines the daily ranking of the highest paying certificates in each major term. To qualify for our list, 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.

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