CD rates mostly held firm for the monthe of November. The lack of movement across CD terms highlights a balanced investor outlook, focusing on long-term security while navigating the broader economic shifts influenced by the Federal Reserve’s monetary policy adjustments.
From October to November 2024, short-term CD rates, including 3-month and 6-month options, held firm at 6.00%, while the 1-year CD rate remained unchanged at 6.43%. Longer-term CDs also experienced no rate fluctuations, with the 1.5-year and 2-year CDs staying at 6.00% and 5.70%, respectively. Rates for 3-year CDs held at 5.28%, 4-year CDs remained at 6.43%, and 5-year and 10-year CDs stayed at 5.35% and 5.10%, respectively. This consistency underscores financial institutions’ cautious yet stable approach amidst the Fed’s supportive policy environment.
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So what’s up with the Fed lately?
In November 2024, the Federal Reserve reduced its benchmark interest rate by 25 basis points, setting the new target range at 4.50% to 4.75%. This move reflects the Fed’s strategy to bolster economic growth amid signs of moderating inflation.
The Personal Consumption Expenditures (PCE) index, a key inflation indicator, increased by 0.2% in October, bringing the annual rate to 2.3%, up from 2.1% in September. This slight uptick suggests that while inflation remains under control, it is not declining as rapidly as anticipated.
Personal income rose by 0.6% in October, while consumer spending grew by 0.4%, indicating sustained consumer confidence and economic resilience. However, the labor market showed mixed signals; weekly jobless claims fell to 216,000, the lowest in five months, yet the economy added only 12,000 jobs in October, the smallest gain since December 2020, due to factors like hurricanes and industrial strikes.
Federal Reserve officials have expressed cautious optimism regarding future rate cuts. Governor Christopher Waller indicated a potential rate reduction in December, contingent on forthcoming economic data, particularly inflation trends. Similarly, Atlanta Fed President Raphael Bostic expects inflation to continue its downward trajectory toward the 2% target but remains vigilant about potential stagnation.
The Federal Reserve’s current approach aims to support economic growth while closely monitoring inflation and labor market dynamics, ensuring a balanced and data-driven monetary policy.
| Term Length | Rate (APY) September | Rate (APY) October | Change |
|---|
| 3 months | 6.00% | 6.00% | No change |
| 6 months | 6.00% | 6.00% | No change |
| 1 year | 6.43% | 6.43% | No change |
| 1.5 years | 6.00% | 6.00% | No change |
| 2 years | 5.70% | 5.70% | No change |
| 3 years | 5.28% | 5.28% | No change |
| 4 years | 6.43% | 6.43% | No change |
| 5 years | 5.35% | 5.35% | No change |
| 10 years | 5.10% | 5.10% | 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
I recommend currently to members to take advantage of CDs or high yield savings accounts. If they can invest for a longer period with CDs to jump on them. More than likely we won’t see these rates in 12 plus months. If an individual needs their savings liquid a high yield savings product is the way to go. The Federal Reserve seems to be done raising rates. Rates on savings products have peaked. Lock into what you can now and earn a little extra.Lori Gravitt, an Assistant Vice President and Branch Manager for Addition Financial Credit Union
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.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’s 50 basis point rate cut in September 2024 reduced the federal funds rate range to between 4.75% and 5.00%.
- CD rates remained unchanged from October to November 2024, showing consistency across all terms, including both short-term and long-term CDs.
- This stability reflects the Federal Reserve’s strategy to foster economic growth while maintaining control over inflationary pressures.
- The Fed’s cautious monetary approach continues to support a stable interest rate environment for depositors and financial institutions alike.
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