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CD term: Last week’s top national ranking This week’s top national ranking Change
3 months 3.35% APY 4.05% APY + 0.70%
6 months 5.00% APY 5.00% APY No change
1 year 5.00% APY 5.00% APY No change
18 months 4.90% APY 5.02% APY + 0.12%
2 years 5.00% APY 5.00% APY No change
3 years 4.60% APY 4.86% APY + 0.26%
4 years 4.65% APY 4.65% APY No change
5 years 4.75% APY 4.75% APY No change
10 years 4.25% APY 4.25% APY No change
For a list of the 15-20 best nationwide rates for any term by clicking on the desired term length above.

The Federal Reserve’s December 14 hike in the federal funds rate was the seventh increase this year. After four consecutive hikes of 0.75%, the Fed’s latest hike was a slightly smaller 0.50%. While still considered a big hike for the Fed, the slight easing in growth is due to indications of a slight easing in inflation.

The continued increase in the federal funds rate has raised deposit rates by orders of magnitude. In fact, many of this week’s top CD yields are four times or more what the top certificates were paying in early 2021. For example, take 3-year CDs. Last December, the highest rate on a nationally available 3-year CD was 1.11%. Today, the highest paying 36-month certificate boasts an interest rate of 4.86%.

The FDIC today released its monthly national averages for key CD terms. The data shows that national averages have increased significantly in each semester over the past month, in some cases by 20-40 percent.

Note that the “best rates” quoted here are the highest national rates that Investopedia found in its daily rate research of hundreds of banks and credit unions. This is very different from the national average, which includes all banks that offer a CD on that term, including many large banks that pay negligible interest rates. So national averages are always quite low, while the highest you can find by shopping around is often 10 to 15 times higher.

Federal Reserve and CD Interest Rates

Every six to eight weeks, the Federal Reserve’s rate-setting committee holds a two-day meeting. One of the primary outcomes of the eight meetings over the course of the year is the Fed’s announcement of whether they are moving the 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 that banks pay each other when they borrow or lend their excess reserves overnight. However, when the federal funds rate is 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 save the economy from financial disaster. And for two whole years, the federal funds rate remained at that zero level.

But in March 2022, the Fed initiated a 0.25% rate hike and indicated it would be the first of many. At the May 2022 meeting, the Fed was already announcing a second hike, this time to 0.50%. But both hikes were just the prelude to four larger 0.75 percentage point hikes the Fed announced in mid-June, late July, mid-September 21 and November 2.

With recent economic data showing that inflation, while still high, has eased a bit, the Fed scaled back its rate hike slightly, announcing a 0.50% hike at its December 14 meeting. The Fed also predicts additional hikes will continue through 2023, although decisions are made on a case-by-case basis at each meeting based on the latest economic indicators.

What is the predicted trend for CD prices?

The Fed’s five rate hikes this year are just the beginning. Rate hikes are a way to fight inflation, and with US inflation still running extremely hot, the Fed is publicly planning for additional rate hikes through 2022 and possibly into 2023.

While the Fed rate doesn’t affect long-term debt like mortgage rates, it does directly affect short-term consumer debt and deposit rates. So with more rate hikes in the offing, it’s reasonable to expect CD rates to rise even further this year and next.

That doesn’t mean you should avoid closing the CD now. But it’s worth considering shorter-term certificates so you can take advantage of the higher prices that will be available in the not-too-distant future. Or consider “raise your rate” or “step-up” CDs, which allow you to activate one rate increase on your existing CD if rates rise significantly.

Disclosure of assessment collection methodology

Each business day, Investopedia tracks interest rate data from more than 200 banks and credit unions that offer CDs to customers across the country and determines a daily ranking of the highest-paying CDs in each major timeframe. To qualify for our listings, an 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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