The Federal Reserve has lowered the federal funds rate twice this 12 months. As a result, rates of interest on deposit accounts decline.
The excellent news: You can secure competitive returns in your certificate of deposit (CD) today and maintain your earning power. In fact, the most effective CDs still pay rates above 4%. Read on to see current CD rates and discover where to find the most effective deals.
Today, CDs typically offer rates much higher than traditional savings accounts. As of January, the most effective short-term CDs (six to 12 months) typically offer rates of interest starting from 4.00% to 4.50% APY.
Today’s top CD rate is 4.35% APY offered by Synchrony on its 13-month CD. No minimum opening deposit is required.
Below is an outline of the most effective CD rates currently available from our verified partners.
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The 2000s were marked by the dotcom bubble and later the global financial crisis in 2008. Although CD interest rates were relatively higher in the early 2000s, they began to decline as the economy slowed and the Federal Reserve lowered its target interest rate to stimulate growth. Until 2009, in the wake of the financial crisis, the average one-year CD paid about 1% APY and the average five-year CD paid less than 2% APY.
The downward trend in CD rates continued throughout the 2010s, especially after the Great Recession of 2007-2009. The Fed’s policies to stimulate the economy (particularly its decision to keep its benchmark interest rate near zero) have led banks to offer very low rates on CDs. By 2013, the average interest rate on 6-month CDs had dropped to about 0.1% APR, while 5-year CDs were earning an average of 0.8% APY.
However, the situation changed between 2015 and 2018, when the Fed began to gradually raise interest rates again. At this point, there was a slight improvement in CD rates as the economy expanded, marking the end of almost a decade of ultra-low rates. However, the outbreak of the Covid-19 pandemic in early 2020 led to emergency rate cuts by the Fed, which pushed CD rates to a new record low.
The situation reversed after the pandemic as inflation began to get out of control. This prompted the Fed to increase interest rates 11 times between March 2022 and July 2023. This, in turn, resulted in higher loan interest rates and higher APRs on savings products, including CDs.
Fast forward to September 2024 – the Fed finally decided to lower the federal funds rate after determining that inflation was essentially under control. Today we are starting to see CD rates come down from their highs. Still, CD prices remain high by historical standards.
See how CD rates have changed since 2009:
Traditionally, long-term CDs offer higher interest rates compared to short-term CDs. This is because locking up money for a longer period of time usually involves greater risk (namely the loss of higher interest rates in the future), which banks compensate with higher rates.
However, this pattern does not necessarily hold today; the highest average CD rate applies to a 12-month period. This indicates a flattening or inversion of the yield curve, which can occur during uncertain economic times or when investors expect future interest rates to decline.
When opening a CD, choosing one with a high APR is just one piece of the puzzle. There are other factors that can affect whether a particular CD will best suit your needs and your overall return. When choosing a CD, consider the following:
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Your goals: Decide how long you want to block your funds. CDs have fixed terms, and withdrawing money before the terms are completed may result in penalties. Typical timescales range from several months to several years. The right timing for you depends on when you anticipate you’ll need access to your money.
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Type of financial institution: Rates can vary significantly between financial institutions. Don’t just check with your current bank; check CD rates at online banks, local banks and credit unions. Online banks, in particular, often offer higher interest rates than traditional brick-and-mortar banks because they have lower overhead costs. However, make sure that any online bank you are considering is FDIC insured (or NCUA insured in the case of credit unions).
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Account Terms: In addition to the interest rate, you should review the terms of the CD, including the maturity date and withdrawal penalties. Also check if there is a minimum deposit requirement and if so, whether it fits your budget.
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Inflation: While CDs can offer protected, consistent returns, they could not all the time keep up with inflation, especially over longer terms. Take this into consideration when deciding on the timing and amount of your investment.