Rate Trends CD, week of July 25, 2022: mostly fixed rates

Term CD Highest national rate last week The highest domestic rate this week Change
6 months 3.01% APY 3.01% APY No changes
1 years 2.55% APY 2.70% APY +0.15
2 years 3.00% APY 3.00% APY No changes
3 years 3.25% APY 3.25% APY No changes
5 years 3.64% APY 3.64% APY No changes

The Federal Reserve raised the federal funds rate by an unusually high three-quarter percentage point on June 15, in addition to two previous hikes this spring. As a result, CD tariffs increased dramatically from March to May, and then again two weeks ago. Certificate rates are expected to continue to rise over the next year, but in the past two weeks they have mostly taken a break.

CD rates since late 2021 have not only increased, they have multiplied, with this week’s best rates doubling or even tripling what top CDs paid 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 3.25%.


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 12 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 findings of the eight meetings 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 zero percent as a way to help the economy avert a financial disaster. And for two full years, the federal funds rate remained at zero percent.

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.

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 July 27th.


What is the expected trend for CD tariffs?

Fed rate hikes in March and May were 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. .

In particular, the Fed is expected to initiate two more major rate hikes, and then possibly three smaller hikes before the end of the year. This could bring the federal funds rate from its current level of 0.75% to 2.50%, or even higher.

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 be available in the not too distant future. Another option is to consider a special type of CD, sometimes called “CD increase rate” or “step-up CD”, which allows you to trigger a rate increase on your existing CD if the rates rise 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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