When one bank raises rates, others follow, meaning better CD rates become available to customers who shop around. The Federal Reserve’s numerous decisions to raise the federal funds rate have steadily boosted CD rates since 2022. The federal funds rate is the rate banks charge each other for lending funds overnight, and it’s set by the Federal Reserve eight times each year. How Are CD Rates Determined?ĬD rates are determined by individual banks and credit unions, but these institutions largely base their rates on the federal funds rate. Treasuries have displayed a similarly inverted yield curve. Should interest rates fall in the future, banks don’t want to be stuck paying higher, fixed rates on longer-term CDs. Throughout the first three quarters of 2023, however, CDs with two- to five-year terms paid less than CDs with 12-month terms.
In times with less volatile interest rates, the longer the CD term, generally the higher the rate. This translates to $352 to $528 in yearly earnings on a $10,000 deposit. In November 2023, this means a 12-month CD paying 3.52% to 5.28% APY. While average CD rates remain modest, good rates tend to be at least two to three times higher. What Is the Average Interest Rate on a CD?
