The Federal Reserve has cut the federal funds rate twice this year. As a result, interest rates on deposit accounts are falling.
Good news: You can lock in competitive certificate of deposit (CD) returns and preserve your profitability today. In fact, the best CDs still pay rates above 4%. Read on for a snapshot of today's CD rates and where to find the best offers.
Today, interest rates on certificates of deposit are typically significantly higher than on traditional savings accounts. As of January, the best short-term CDs (6 to 12 months) typically offered rates around 4.00% to 4.50% APY.
Today, the highest CD rate available on a 13-month CD through Synchrony is 4.35% APY. There is no minimum opening deposit required.
Here are some of the best CD rates currently available from our verified partners.
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The 2000s were marked by the dot-com bubble and the subsequent global financial crisis of 2008. Although CD rates were relatively high in the early 2000s, CD rates began to decline as the economy slowed and the Federal Reserve lowered its target interest rate to stimulate growth. By 2009, after the financial crisis, the average annual interest rate on a one-year CD was about 1%, and the annual interest rate on a five-year CD was less than 2%.
The trend of declining CD rates continued into the 2010s, especially after the Great Recession of 2007-2009. The Federal Reserve's policies to stimulate the economy (especially its decision to keep its benchmark interest rate near zero) have led banks to offer very low interest rates on deposits. By 2013, the average APR on a 6-month CD had dropped to about 0.1%, while the average APR on a 5-year CD was 0.8%.
However, things changed between 2015 and 2018, when the Fed again began gradually raising interest rates. At this time, CD rates improved slightly as the economy expanded, marking the end of nearly a decade of ultra-low rates. However, the outbreak of the COVID-19 pandemic in early 2020 led to an emergency interest rate cut by the Federal Reserve, causing CD rates to fall to record lows.
The situation reversed after the pandemic as inflation began to spiral out of control. This prompted the Federal Reserve to raise interest rates 11 times between March 2022 and July 2023. This, in turn, has led to higher interest rates on loans and higher APRs on savings products, including certificates of deposit.
Fast forward to September 2024 - the Fed finally decided to lower the federal funds rate after determining that inflation was basically under control. Today, we are starting to see deposit rates come down from their peaks. Even so, CD rates are still high by historical standards.
Take a look at how CD rates have changed since 2009:
Traditionally, long-term CDs offer higher interest rates than short-term CDs. This is because locking up funds for a longer period of time generally carries a greater risk (i.e. missing out on higher interest rates in the future), and banks compensate for this risk with higher interest rates.
However, this model does not necessarily hold true today. The highest average CD rates are for 12-month terms. This indicates a flattening or inversion of the yield curve, which can occur during times of economic uncertainty or when investors anticipate lower interest rates in the future.
Read more: Short-term or long-term CD: Which one is best for you?
When opening a CD, choosing one with a high APY is just part of the puzzle. There are other factors that may affect whether a specific CD is best for your needs and overall returns. Consider the following factors when choosing a CD:
Your goals: Decide how long you are willing to lock up your funds. CDs have a fixed term, and withdrawing funds before the end of the term may result in penalties. Common terms range from a few months to a few years. The term that's right for you depends on when you expect to need access to your funds.
Financial institution type: Interest rates can vary widely between financial institutions. Don't just check with your current bank; check with your current bank, too. Research term deposit 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 administrative costs. However, make sure any online bank you consider is FDIC insured (or NCUA insured in the case of credit unions).
Account Terms: In addition to interest rates, understand the terms of the CD, including maturity dates and withdrawal penalties. Also, check if there is a minimum deposit requirement and, if so, if it fits within your budget.
inflation: While CDs can provide safe, fixed returns, they may not always keep pace with inflation, especially over the long term. Consider this when deciding on the investment period and amount.