The Fed lowered federal funding three times in 2024. Therefore, the deposit account rate is declining. Good news: You can lock in a competitive certificate of deposit (CD) today and retain your income capacity. In fact, the best CDs still pay more than 4%. Keep reading today’s CD price snapshot and where to find the best offer.
Today’s CDs usually offer significantly higher prices than traditional savings accounts. As of February, the best short-term CD (six to 12 months) usually offers a rate of about 4.00% to 4.50% APY.
Today, Goldman Sachs has a CD of up to 4.40% APY provided by Marcus on its 14-month CD. An open deposit of minimum $500 is required.
Here are some of the best CD prices available to our proven partners today.
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The 2000s were characterized by the Internet bubble, and then the global financial crisis in 2008. Although CD rates were relatively high in the early 2000s, they began to decline as the economy slowed down and the Fed cut its target rate to stimulate growth. By 2009, after the financial crisis, an average of about 1% of CDs paid for one year and less than 2% of APY for five years CDs.
The trend of a decline in CD rates continued until the 2010s, especially after the Great Recession of 2007-2009. The Fed's policy to stimulate the economy (particularly, its decision to have a benchmark rate close to zero) has led banks to offer very low CD rates. By 2013, the average interest rate for 6-month CDs fell to about 0.1% APY, while the average for 5-year CDs was 0.8% APY.
However, between 2015 and 2018, things changed when the Fed began to gradually raise interest rates. At this point, the slightly higher CD rate as the economy expands, marking the end of the ultra-low rate for nearly a decade. However, in early 2020, the outbreak of the COVID-19 pandemic in early 19020 led to a decrease in the Fed's emergency rate, causing the CD rate to drop to a new record low.
As inflation began to get out of control, the situation after the pandemic reversed. This prompted the Fed to increase its 11-fold rate between March 2022 and July 2023. This in turn leads to higher interest rates on loans and higher loan rates on savings products (including CDs).
Fast forward to September 2024 - The Fed determined that inflation was basically under control and finally decided to start lowering federal funding rates. Today, we start to see CD prices drop from their peak. Even so, the CD rate is still high by historical standards.
Look at the changes in CD rates since 2009:
Traditionally, long-term CDs offer higher interest rates than short-term CDs. This is because locking a currency for a longer period usually brings greater risks (i.e., higher interest rates in the future), and banks compensate at higher rates.
However, this model may not necessarily hold today. The highest average CD rate was 12 months. This suggests that flattening or reversal of the yield curve may occur during uncertain economic times or when investors expect future interest rates to fall.
Read more: Short-term or long-term CD: Which one is best for you?
When opening a CD, selecting an executive's CD is only part of the puzzle. There are other factors that may affect whether a particular CD is best for your needs and overall returns. Consider the following when selecting a CD:
Your goal: Determine how long you are willing to lock in funds. CDs come with fixed terms and withdrawing your money before the end of the period may result in penalties. General terms range from months to years. The correct deadline depends on when you need to get your money.
Types of financial institutions: Interest rates can vary greatly between financial institutions. Don't just contact your current bank; online banks, local banks and credit unions that study CDs. Online banks, in particular, often offer higher interest rates than traditional physical banks because of their lower indirect costs. However, make sure any online bank you believe is FDIC-insured (or NCUA provided for credit unions).
Account Terms: Exceed interest rates, understand the terms of the CD, including due date and withdrawal penalty. Also, check if there are minimum deposit requirements, if so, that fits your budget.
Inflation: Although CDs can provide safe fixed returns, they may not always be in sync with inflation, especially for longer periods. Consider this period and investment amount.