CD price trends, week of June 27, 2022: a jump in prices

compact disc term Last week’s highest national price This week’s National Highest Price they change
6 months 1.60% APY 2.32% APY +0.72
One year 2.25% APY 2.50% APY +0.25
Two years 2.87% APY 3.00% APY +0.13
3 years 3.05% APY 3.25% APY +0.20
5 years 3.20% APY 3.50% APY +0.30

The Federal Reserve raised the federal funds rate by an unusually large three-quarters from two percentage points each Wednesday, on top of two previous increases this spring. Certificate of Deposit rates were already up significantly from March to May, but certificate rates are expected to continue rising and certainly did so this week.

CD rates have not only gone up since the end of 2021, but have doubled, doubling or even tripling what the best CDs were paying six months ago. Take 3-year CDs, for example. The highest rate on a 3-year CD available nationwide was 1.11% in late December. Today, the highest-paying 36-month certificate has a rate of 3.25%.


Note that the “higher rates” listed here are the highest nationwide available rates that Investopedia has identified in its daily rate lookup on hundreds of banks and credit unions. This is very different from the national average, which includes all banks that offer a CD with this term, including many large banks that pay very little interest. Thus, the national rates are always very low, while the higher rates that you can discover by shopping are often 10 to 12 times higher.

Fed and CD 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 rallies throughout the year is the Fed’s announcement of whether it will raise the federal funds rate up, down, or unchanged.

The federal funds rate does not directly determine what banks will pay clients for securities 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 above zero, it provides an incentive for banks to look to consumers as a potential source of cheaper deposits, which they then try to attract by increasing savings, money market and CD rates.

At the start of the pandemic, the Federal Reserve announced an emergency interest rate cut to zero percent, as a way to help the economy avert a financial catastrophe. For two full years, the federal funds rate has remained at zero percent.

But in March 2022, the Fed started a 0.25% increase and indicated it would be the first of many. By the May 2022 meeting, the Fed had already announced a second increase of 0.50% this time. But both increases were just a prelude to the larger 0.75 percentage point increase announced by the Fed on June 15.

Before the Fed makes any rate change, there is usually a reasonable understanding of what they will reveal before they actually announce it. As a result, many banks and credit unions start making anticipatory rate increases, while others choose to wait until the rate hike is solidified.

The next meeting of the Federal Reserve will be announced on July 27.


What is the expected trend for CD prices?

The Fed’s rate hikes in March and May were just the beginning. Raising rates is a way to fight inflation, and with inflation in the United States exceptionally high at the moment, the Fed is publicly planning to implement a series of several rate increases through 2022, and possibly into 2023.

Specifically, the Fed is expected to start two rate hikes, and then possibly three smaller increases before the end of the year. That could take the fed 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 does directly affect the direction of short-term consumer debt and deposit rates. So with many hikes still occurring in 2022, one would expect CD rates to rise even more as this year progresses.

This does not mean that you should avoid locking a CD now. But this does mean that you should consider short-term certifications, so that you can take advantage of the higher rates that become available in the not-too-distant future. Another option is to consider a special type of CD, sometimes called a “rising CD” or “rising CD”, which allows you to activate a single rate increase on your existing CD if prices go up significantly.

Disclosure of pricing methodology

Every business day, Investopedia tracks price data for more than 200 banks and credit unions that deliver CDs to customers across the country, and identifies daily ratings of the highest-earning certificates in 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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