Current CD Rates March 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 04/03/2024 by

SuperMoney Team

Edited by

Benjamin Locke

Summary:

During a recent “Fed Listens” event, Federal Reserve Chair Jerome Powell and other Fed governors heard firsthand about the challenges and pressures faced by various sectors due to the Fed’s interest rate hikes. These developments are important for financial institutions and investors alike, as they navigate the changing interest and CD rates and seek to balance investment growth with inflation control.

Transitioning from February to March, the CD market demonstrated a mix of stability and subtle shifts, mirroring the broader economic landscape and the Federal Reserve’s monetary policy decisions. The rates for 3-month, 1.5-year, 5-year, and 10-year CDs remained steady, showcasing a solid market foundation amidst fluctuating economic conditions. However, the 6-month and 1-year terms experienced decreases of 0.20% and 0.16%, respectively, reflecting cautious investor sentiment. Conversely, the 4-year term saw a slight increase of 0.07%, indicating specific term lengths’ resilience or appeal. The 2-year and 3-year terms also saw minor decreases, underscoring the market’s nuanced adjustments to the economic outlook.

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So what’s up with the Fed lately?

The backdrop to these market movements was the Federal Reserve’s March meeting, where it was decided to maintain interest rates, a decision that likely influenced the CD market’s trajectory. This choice by the Fed to hold rates steady, despite ongoing discussions about inflation and economic growth, suggests a careful approach to monetary policy amid uncertain economic conditions. The Fed’s decision not to raise rates may have contributed to the stability observed in certain CD term rates and the slight adjustments in others, as investors and financial institutions navigate an environment of cautious optimism and ongoing economic challenges.

On March 22, Federal Reserve Chair Jerome Powell and other Fed governors engaged directly with business and community leaders to discuss the impacts of the Fed’s interest rate hikes on the American populace, amidst ongoing price and labor market pressures.The event highlighted the real-world challenges faced by various industries due to the Fed’s monetary policies, including the struggle to manage risk and hedge against rising interest rates, which have been elevated rapidly since March 2022 to combat high inflation, stabilizing at 5.25%-5.5% since last July. This gathering provided the Fed with valuable insights into the economic and social repercussions of its interest rate policies, underscoring the urgency for a balanced approach to inflation control and economic support.

Current CD Rates by term length

Term Length	Rate (APY) Feb	Rate (APY) March	Change
3 months	6.00%	6.00%	No change
6 months	5.75%	5.55%	-0.20%
1 year	5.56%	5.40%	-0.16%
1.5 years	6.00%	6.00%	No change
2 years	5.27%	5.20%	-0.07%
3 years	5.10%	5.00%	-0.10%
4 years	4.73%	4.80%	+0.07%
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, CD (Certificate of Deposit) rates were influenced, with financial institutions adjusting their offerings 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.

Fed’s activity in 2023

In 2023, the Federal Reserve took decisive action in response to the evolving economic landscape by adjusting its interest rates multiple times. These hikes were part of the Fed’s strategy to manage inflationary pressures and stabilize the economy. Starting in February, the central bank initiated a series of rate increases, signaling its intent to ensure sustainable economic growth. By July, the cumulative adjustments brought the rate range from 5.25% to 5.50%. These moves reflected the Federal Reserve’s commitment to maintaining monetary stability and its proactive approach to addressing economic challenges.

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.

Pro Tip

“In a low-interest-rate environment, it’s vital to scrutinize the terms and potential penalties for early withdrawal. CDs can be a compelling choice for those seeking guaranteed returns without the risk associated with other investment vehicles. However, maximizing yields from CDs requires a careful analysis of maturity periods and interest rates, balancing the need for liquidity against the desire for higher returns.” – Seren Parry, Finance Officer at OCBB.

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 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; 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’s ongoing interest rate policies, including the rapid increases and the current pause, directly influence the financial landscape, impacting CD rates and investor decisions.
Insights from the “Fed Listens” event reveal the broader economic challenges and expectations, which are crucial for financial institutions in setting CD rates to balance growth with inflation control.
The anticipation of potential rate cuts later in the year, as discussed during the Fed meeting, could lead to adjustments in CD rates, offering new opportunities for savers and investors.
The real-world feedback on the impact of high interest rates on sectors like agriculture and small manufacturing underscores the interconnectedness of Federal Reserve policies, CD rates, and the broader economy.

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