Rate Trends CD, week of 12 September: rates are firm

Term CD Highest national rate last week The highest domestic rate this week Change
3 months 2.15% APY 2.15% APY No changes
6 months 4.00% APY 4.00% APY No changes
1 years 3.21% APY 3.21% APY No changes
18 months 3.75% APY 3.75% APY No changes
2 years 3.59% APY 3.59% APY No changes
3 years 3.55% APY 3.55% APY No changes
4 years 3.85% APY 3.85% APY No changes
5 years 3.75% APY 3.75% APY No changes

On July 27, the Federal Reserve raised the federal funds rate for the fourth time this calendar year. It was the second consecutive time that the Fed raised rates by an unusually high three-quarter percentage point, in addition to two previous hikes this spring. As a result, CD exchange rates have risen sharply since March and are likely to continue rising over the next year.

CD rates since late 2021 have not only increased, they have multiplied, with many of this week’s top CD rates coming in at more than three times what top certificates paid just six months ago. Take 3-year-old CDs, for example. The highest rate on a 3-year CD available nationwide was 1.11% at the end of December. Today, the highest paid 36-month certificate boasts a rate of 3.55%.


Note that the “top rates” cited here are the highest nationally available rates that Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is very different from the national average, which includes all banks offering a CD with that term, including many large banks that pay little interest. Therefore, national averages are always quite low, while the maximum rates you can find out by shopping around are often 10 to 15 times higher.

The Federal Reserve and CD tariffs

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 rallies throughout the year is the Fed’s announcement of the federal funds rate hike, fall, or change.

The federal funds rate does not directly determine 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 each other their excess reserves overnight. However, when the federal funds rate is anything above zero, it provides an incentive for banks to look to consumers as a potentially cheaper source of deposits, which they then seek to attract by increasing 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 two full years, the federal funds rate remained at 0%.

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

Before the Fed makes any rate changes, there is usually a reasonable understanding of what they will unveil before actually announcing it. As a result, many banks and credit unions start making early rate hikes, while others choose to wait until the rate hike is consolidated.

The announcement of the next Fed meeting will be given on 21 September.


What is the expected trend for CD tariffs?

The Fed’s four rate hikes this year are still just the beginning. Raising rates is one way to fight inflation, and with US inflation being exceptionally hot right now, the Fed is publicly planning to implement a series of numerous rate hikes through 2022 and likely 2023. .

While the Fed rate does not affect long-term debt like mortgage rates, it directly affects the direction of short-term consumer debt and deposit rates. So, with several 2022 hikes still to come, CD rates would be expected to increase dramatically as this year progresses.

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

Dissemination of the tariff collection methodology

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

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