CD duration Last week’s best national rate Best national rate of the week Change
    3 months 4.05% APY 4.05% APY No change
    6 months 5.00% APY 5.00% APY No change
    1 year 4.86% ABS 4.90% APY +0.04%
    18 months 5.02% APY 5.12% APY + 0.10%
    2 years 4.86% ABS 4.86% ABS No change
    3 years 4.86% ABS 4.86% ABS No change
    4 years 4.75% APY 4.75% APY No change
    5 years 4.63% ABS 4.63% ABS No change
    10 years 4.40% APY 4.40% APY No change
    For a list of the top 15-20 domestic rates for any term, click on the desired term length above.

    The Fed’s hike in the federal funds rate in mid-December was its seventh hike this year. After four massive 0.75% increases in a row, the central bank’s latest increase was just under 0.50%. Although still considered a significant increase for the Fed, the slight slowdown in the increase is due to indications that inflation is falling slightly.

    The continued rise in the federal funds rate has pushed deposit interest rates up by an order of magnitude. In fact, many of this week’s top CD yields are four times higher — or more — than what top certificates were paying at the start of 2021. Take 3-year CDs, for example. Last December’s highest rate on a 3-year CD available nationally was 1.11%. Today, the highest paying 36-month certificate has a rate of 4.86%.

    The FDIC released its latest monthly national averages for major CD terms last week. The data shows that over the past month, national averages again rose noticeably, although increases in January averages ranged from 11-27% compared to the 20-40% jumps recorded in December.

    Note that the “highest rates” quoted here are the highest rates available nationwide that Investopedia has identified in its daily search of rates from hundreds of banks and credit unions. This is very different from the national average, which includes all banks offering a CD with this term, including many large banks that pay paltry interest. Thus, the national averages are always quite low, while the best rates you can find while shopping 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. A key outcome of the eight meetings throughout the year is whether the Fed announces whether to raise, lower, or hold the federal funds rate.

    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 that banks pay each other when they borrow or lend their excess reserves overnight. However, when the fed funds rate is above zero, this induces banks to view consumers as a potentially cheaper source of deposits, which they then try to attract by raising savings, money market and interest rates. some CDS.

    At the start of the pandemic, the Fed announced an emergency rate cut to 0% to help the economy avoid financial catastrophe. And for two full years, the fed funds rate has stayed at that zero level.

    But in March 2022, the Fed launched a 0.25% rate hike and signaled it would be the first of many. As early as the May 2022 meeting, the Fed was already announcing a second hike, this time of 0.50%. But these two hikes were only a prelude to four larger hikes of 0.75 percentage points announced by the Fed in mid-June, at the end of July, in mid-September on November 21 and November 2.

    While the latest economic data indicates that inflation has eased somewhat, the Fed has slowed the pace of its hikes, announcing a 0.50% hike at the December 14 meeting. Although decisions are made one by one at each meeting based on the latest economic indicators, the Fed has projected further hikes to continue through 2023, although the market consensus is that the 2023 hikes will likely result by more modest increases of a quarter point. The next Fed rate announcement will be on February 1.

    What is the expected trend for CD rates?

    The Fed’s five rate hikes this year are just the start. Raising rates is a way to fight inflation, and with US inflation still exceptionally high, the Fed publicly plans to implement additional rate hikes through 2022 and likely through 2023.

    Although the Fed rate does not impact long-term debt like mortgage rates, it does directly influence the direction of short-term consumer debt and deposit rates. So, with further increases likely, one could reasonably predict that CD rates will rise further this year and next.

    That doesn’t mean you should avoid locking a CD now. But it’s worth considering shorter-term certificates so you can capitalize on higher rates that will become available in the not-too-distant future. Or consider “increase your rate” or “increase” CDs, which allow you to activate a rate increase on your existing CD if rates increase significantly.

    Disclosure of rate collection methodology

    Each business day, Investopedia tracks rate data from more than 200 banks and credit unions that offer CDs to customers nationwide and determines the daily ranking of the highest-paying certificates for each major term. To qualify for our listings, the institution must be federally insured (FDIC for banks, NCUA for credit unions) and the minimum initial CD deposit must not exceed $25,000.

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