CD Price Trends, Week of January 23: Prices are firm
|CD term||Last week’s national high||The highest national price for this week||they change|
|3 months||4.05%APY||4.05%APY||No change|
|6 months||5.00%APY||5.00%APY||No change|
|Two years||4.86%APY||4.86%APY||No change|
|3 years||4.86%APY||4.86%APY||No change|
|4 years||4.75%APY||4.75%APY||No change|
|5 years||4.63%APY||4.63%APY||No change|
|10 years||4.40%APY||4.40%APY||No change|
The Fed’s hike in the federal funds rate in mid-December was the seventh hike this year. After four massive increases of 0.75% in a row, the central bank’s latest increase was just under 0.50%. Although the Fed is still a big increase, the slight easing of the increase is due to indications that inflation is easing slightly.
The continuous rise in the federal funds rate has caused deposit rates to rise by large numbers. In fact, many of the top CD revenues this week are four times higher — or more — than what were being paid by the best certifications at the start of 2021. Take 3-year CDs, for example. Last December’s highest rate on a nationally available 3-year CD was 1.11%. Today, the highest paying 36-month certificate boasts a rate of 4.86%.
The FDIC published the latest monthly national averages for major CD conditions last week. The data shows that over the previous month, national averages rose again significantly, although increases in January averages ranged from 11-27 percent versus the jumps of 20-40 percent recorded in December.
Note that the “higher rates” listed here are the highest rates available nationwide that Investopedia has determined in its daily rate search on hundreds of banks and credit unions. This is very different from the national average, which includes all banks that offer a CD with that term, including many of the larger ones that pay minuscule interest. Thus, national rates are always very low, while higher rates that you can find out by shopping around are often 10-15 times higher.
Fed and CD rates
Every six to eight weeks, the Federal Reserve’s rate-setting committee meets for two days. One of the primary outcomes of the eight rallies throughout the year is the Federal Reserve’s announcement whether they are moving Federal funds rate up, down, or no change.
The federal funds rate does not directly determine what banks will pay customers 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 at consumers as a potential source of cheaper deposits, which they then try to attract by increasing savings, money market, and CD rates.
At the beginning of the pandemic, the Fed announced Reduce the emergency rate to 0% as a way to help the economy stave off financial disaster. And for two full years, the federal funds rate has been at that zero level.
But in March 2022, the Fed initiated a 0.25% increase and indicated it would be the first of many. By the May 2022 meeting, the Fed was already announcing a second increase of 0.50% this time. But both increases were just a precursor to four larger 0.75 percentage point hikes announced by the Fed in mid-June, late July, mid-September 21 and November 2.
With the latest economic data suggesting that inflation has softened slightly, the Fed eased the pace of its increases, announcing a 0.50% increase at its December 14th meeting. Although decisions are made one-by-one at each meeting based on the latest economic indicators, the Fed has projected that additional increases will continue into 2023, despite the market consensus that the 2023 hikes will likely come in modest quarter-point increments. The next Fed rate announcement will be on February 1.
What is the expected direction of CD prices?
The Fed’s five rate hikes this year are just the beginning. Raising rates means to fight inflationWith inflation still exceptionally high in the United States, the Federal Reserve publicly plans to implement additional interest rate increases through 2022 and possibly 2023.
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 the potential for more hikes, one would be reasonable Predict that CD rates will rise further This year and next year.
This does not mean that you should avoid locking a CD now. But it does make it worth considering short-term certifications so you can take advantage of the higher rates that are becoming available in the not too distant future. Or consider Raising Your Price or “Ascending” CDs, which allow you to activate a single rate increase on your existing CD if prices go up too high.
Disclosure of the price collection methodology
Every business day, Investopedia tracks pricing data for more than 200 banks and credit unions that offer CDs to customers across the country and determines daily ratings for the highest-paying certificates in each key term. To qualify for our listings, an organization must be federally insured (FDIC for banks, NCUA for credit unions), and the minimum initial CD deposit must not exceed $25,000.