In the closing week of October, the landscape of Certificate of Deposit (CD) rates exhibited a diverse pattern: while 6-month, 1-year, 2-year, 4-year, and 5-year terms held steady, the 3-month term saw a notable increase from 5.66% to 6.00%. Meanwhile, both 18-month and 10-year terms underwent a decrease, dropping by 0.20%. This careful adjustment of rates signifies that banks are cautiously maneuvering through the Federal Reserve’s inflation control tactics.
As October reached its end, the CD rates painted a complex picture. The 3-month term increased by 0.34%, signaling a proactive response to evolving economic factors, yet the 18-month and 10-year terms saw a reduction by 0.20%, reflecting a strategic adaptation to the Federal Reserve’s anticipated policy shifts. The overall stability in the majority of the terms, juxtaposed with targeted adjustments, underscores the nuanced approach banks are taking in an ever-changing economic environment. These shifts are telling indicators of how financial institutions are strategically aligning themselves with the Fed’s forthcoming monetary policy decisions, which have broad implications for savers and the economic system at large.
Current CD Rates by term length
|Term length||Rate (APY) Oct. 23rd||Rate (APY) Oct. 27th||Change|
|6 months||6.50%||6.50%||No Change|
|1 year||6.18%||6.18%||No Change|
|2 years||5.60%||5.60%||No Change|
|4 years||5.13%||5.13%||No Change|
|5 years||5.00%||5.00%||No Change|
In 2023, the Federal Reserve implemented several rate hikes, with notable increases of 0.25% in both March and May, bringing the federal funds rate to a target range of 5.00% – 5.25%. 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?
|Direct 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 available 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
|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.|
- In the week of October 30th, CD rates held steady with minor declines in 18-month and 10-year terms, indicating a stable yet reactive financial climate.
- CD rates are influenced by the federal funds rate, managed by the Federal Reserve, which adjusts rates based on economic conditions.
- In 2023, the Federal Reserve made multiple rate hikes, affecting CD rates as financial institutions adjusted their offerings in response.
- The Fed made the decision to hold steady with their rates last week.
- Historically, CD rates have seen highs in the late 1970s and early 1980s, and lows during significant economic downturns.
- The national average CD rate is an aggregate, with online banks often offering higher rates than traditional banks with physical branches.
- Various types of CDs are available, each with unique characteristics, catering to diverse investment needs and strategies.