Current CD Rates July 2024

Q: How does the Fed rate affect CDS?

How to compare CD accounts To compare CD accounts , focus on the annual percentage yield (APY) for interest earnings, term lengths that match your financial timeline, minimum deposit requirements, and the bank’s stability. Shorter terms offer flexibility, while longer ones typically yield higher... Learn More at SuperMoney.com

Last updated 08/07/2024 by

Benjamin Locke

Edited by

Andrew Latham

Summary:

Market trends from June to July reflected a consistent pattern in the highest available CD rates, with minimal fluctuations across various terms. This steadiness in CD rates aligns with the Federal Reserve’s ongoing strategy to maintain higher interest rates well into 2024. Despite broader market speculations about potential rate hikes, the Fed’s commitment to controlling inflation and stabilizing the economic landscape has led to a stable interest rate environment.

From June to July 2024, the landscape for the highest possible rates available for Certificates of Deposit (CDs) exhibited a pattern of stability across various terms, indicating a steady approach in response to ongoing economic conditions and Federal Reserve policies. The rates for the highest available shorter-term CDs, specifically the 3-month and 6-month, reflected this stability, with the 3-month rate increasing to 6.00% from 5.51% and the 6-month rate remaining unchanged at 5.51%. Similarly, the 1-year CD rate rose to 6.00% from 5.40%.

The highest available longer-term CDs, spanning from 1.5 to 10 years, also showed minimal changes in their rates. The 1.5-year CDs stayed at 6.00%, while the 2-year CDs increased slightly to 5.10% from 5.00%. Both the 3-year CDs and 4-year CDs maintained rates of 5.00% and 4.70%, respectively. The 5-year CDs continued to hold at 5.35%. The 10-year CDs remained the longest-term stable investment option at a rate of 4.00%, underscoring a consistent investor sentiment towards medium to long-term financial planning amidst current economic forecasts and Federal Reserve strategies. This overall steadiness across different CD terms reflects an ongoing cautious yet consistent approach by investors navigating the current interest rate environment.

So what’s up with the Fed lately?

In July 2024, financial advisors are recommending that consumers consider locking in long-term certificates of deposit (CDs) ahead of the Federal Reserve’s upcoming policy meeting. With the potential for rate cuts on the horizon, current CD rates offer attractive yields that might decrease if the Fed decides to lower interest rates. Since the Fed has maintained rates between 5.25% and 5.50% since July 2023, amidst efforts to curb inflation, locking in a long-term CD now could help investors secure favorable returns. This strategy provides a hedge against future economic uncertainties and ensures a stable, predictable income stream in an environment where interest rates might soon decline.

During their June 2024 meeting, the Federal Open Market Committee (FOMC) opted to keep rates steady, signaling a cautious approach while closely monitoring inflation trends. With inflation still above target levels, the Fed’s next steps remain uncertain, making now a strategic time to lock in higher CD rates before potential cuts. This proactive measure can protect investors from the impact of future rate adjustments and provide stability in their financial planning.

Term Length	Rate (APY) June	Rate (APY) July	Change
3 months	5.51%	6.00%	+0.49%
6 months	5.51%	5.51%	No change
1 year	5.40%	6.00%	+0.60%
1.5 years	6.00%	6.00%	No change
2 years	5.00%	5.10%	+0.10%
3 years	5.00%	5.00%	No change
4 years	4.70%	4.70%	No change
5 years	5.35%	5.35%	No change
10 years	4.00%	4.00%	No change

In 2023, the Federal Reserve implemented several rate hikes, with notable increases of 0.25% in March, May, and July, bringing the federal funds rate to a target range of 5.25% – 5.50%. These hikes were part of the Fed’s strategy to manage inflation and stabilize the economy. As a direct consequence, financial institutions adjusted CD (Certificate of Deposit) rates in response to the Fed’s decisions. Typically, when the Fed raises interest rates, CD rates also tend to rise, offering better returns for savers and investors.

Expert Insight

Inflation in June fell for the third consecutive month and remained below initial forecasts, landing at 3.0%. While some prices continue increasing at a higher rate than expected, overall prices are rising at a slower pace than anytime in the past 12 months. If this trend continues in July (report due on 8/14/24), then there is a high likelihood that banks will preempt a Federal Reserve rate cut by lowering their own CD rates. Longer-term CD maturities such as 3-5 year terms, have been slowly falling throughout 2024 and this may accelerate. Short-term rates remain high and are being marketed aggressively to bring in short-term consumer money, but banks are lowering rates and disincentivizing longer-term CDs to avoid paying out high interest rates during a future rate cutting cycle. – Stephen Kates, Principal Financial Analyst for RetireGuide.com

Fed’s activity in 2023 and 2024

In 2023, the Federal Reserve responded to the dynamic economic conditions by implementing a series of interest rate adjustments. These changes were part of a broader strategy to curb inflation and ensure the stability of the economy. The action commenced in February with an increase, setting a pattern of proactive monetary policy maneuvers throughout the year. By July 2023, these incremental adjustments had raised the benchmark rate to a range between 5.25% and 5.50%, underscoring the Fed’s dedication to fostering monetary equilibrium and addressing economic uncertainties.

As of now in 2024, the Federal Reserve has maintained the interest rate levels set in 2023, continuing with a rate range between 5.25% and 5.50%. This steady stance reflects the central bank’s ongoing commitment to monitoring economic indicators and inflation trends closely. The Federal Reserve’s adherence to these rates aligns with its dual mandate to foster maximum employment and price stability. In the face of evolving economic conditions, the Federal Reserve’s decisions on interest rates are crucial for managing inflationary pressures and underpinning the broader health of the economy.

Date	Rate Increase (basis points)	New Rate Range
February 1, 2023	25	4.50% – 4.75%
March 22, 2023	25	4.75% to 5.00%
May 3, 2023	25	5.00% to 5.25%
July 26, 2023	25	5.25% to 5.50%

How does the Fed rate affect CDS?

Aspect	Description
Correlation	CD (Certificate of Deposit) rates are generally correlated with the federal funds rate. This implies that when the Federal Reserve hikes its interest rate, CD rates are also likely to rise, and the opposite is true when the Fed reduces its rate.
Lag in Response	While there’s a clear correlation between the Federal Reserve’s rate and CD rates, the latter might not instantly react to the Fed’s changes. Meaning, there might be a delay before financial institutions adjust the interest rates on their CDs after a Fed rate change.
Attracting Deposits	When the Federal Reserve increases its rate, banks and credit unions might boost the interest they offer on CDs to remain competitive and draw in more deposits. Higher CD rates can entice individuals to invest their money for longer periods.
Overall Financial Ecosystem Impact	The Federal Reserve’s decisions on interest rates influence the broader financial landscape. This encompasses not just CD rates but also interest rates on various other financial products, affecting the choices investors and consumers make.

How to compare CD accounts

To compare CD accounts, focus on the annual percentage yield (APY) for interest earnings, term lengths that match your financial timeline, minimum deposit requirements, and the bank’s stability. Shorter terms offer flexibility, while longer ones typically yield higher returns. Always consider potential penalties for early withdrawal. Compare these aspects across banks to find the most suitable CD for your savings goals.

Some of the highest CD rates in history were observed in the late 1970s and early 1980s when the Federal Reserve significantly raised rates to counteract high inflation. Conversely, during economic downturns, such as the 1981 to 1982 Recession and the Great Recession (2007 to 2009), the Federal Reserve lowered rates, leading to a decline in CD rates.

Expert Insight

With inflation on the rise, financial institutions adjust CD rates to offer competitive returns while maintaining a balance with economic conditions. Institutions keenly observe the Federal Reserve’s moves and inflation trends to adjust their offerings. In July, we see a trend where banks incrementally increase CD rates to attract depositors while ensuring they remain profitable. – Mohan Babu, Savings Specialist at Dealhack

National average vs. highest CD rates

The national average CD rate is an aggregate of various financial institutions, which means it’s influenced by both high and low offerings. Some banks, especially online ones, offer higher CD rates to stand out in a competitive market and attract new customers. Traditional banks with physical branches might have lower rates due to higher operational costs. While shopping for CDs, it’s essential to consider both the interest rate and any additional features or benefits the account might offer.

Types of CDs

CD Type	Characteristics	Example
Traditional	Common CDs with fixed interest over a set period.	Deposit $1,000 for six months at 3% annually; get back principal plus interest.
Bump-up	Traditional CD allows a one-time rate increase if the bank raises a similar CD rate.	Buy a $1,000, three-year CD at 2%. If the bank raises the rate to 2.75%, you can adjust for the remaining term.
Step-up	Rates automatically increase at set intervals.	Buy a three-year CD at 1.75%; rate increases 0.25% annually.
Liquid (no-penalty)	No fees for early withdrawal but typically lower rates.	A $1,000, two-year CD with a rate under 3%.
Zero-coupon	Bought at a discount; no periodic interest but receives par value at the end.	Buy a $985, two-year CD; get $1,000 at maturity.
Callable	Fixed-rate, but banks can buy back early, especially if rates drop.	Buy a two-year, 3% CD callable after one year; the bank can repurchase if rates drop.
Brokered	Sold via brokerage; allows diverse CD holdings in one account.	Open a brokerage account and buy various CDs through it.
High-yield	Traditional CDs with higher yields.	Buy a two-year CD at 3.5% when others offer 2.75%.
Jumbo	Requires large deposits, possibly with higher rates.	Buy a $250,000, two-year CD at 2.5%; a regular CD offers 2.4% for $1,000.
Add-on	Allows additional deposits during its term.	Start a two-year CD at 2% with $1,000; add $500 semi-annually.
Foreign currency	Uses U.S. dollars, converted to foreign currency, and back at maturity; has exchange rate risks.	Buy a two-year, euro-denominated CD at 3% for $10,000, converted back to USD at maturity’s exchange rate.

Key takeaways

The Federal Reserve has maintained the interest rate from 2023 into 2024, with the range staying between 5.25% and 5.50%.
Market trends from June to July 2024 reflected a consistent pattern in the highest available CD rates, with no fluctuations across various terms.
The stability in CD rates aligns with the Federal Reserve’s ongoing strategy to maintain higher interest rates well into 2024.
Despite broader market speculations about potential rate hikes, the Fed’s commitment to controlling inflation and stabilizing the economic landscape has led to a stable interest rate environment.

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