[📌 Update September 21, 2022: As many economists expected, the Federal Reserve raised benchmark interest rates by another 0.75% at the culmination of their September meeting. This marks the third consecutive 0.75% rate hike by the FED, putting the overall federal fund rate at 3.00 -3.25%. Fed officials also forecasted the benchmark rate to hit 4.4% by the end of 2022 and 4.6% in 2023. This will undoubtedly put more upward pressure on CD (certificate of deposit) rates which have already been on the rise this year, however, not as swiftly as mortgage and various loan rates.]
During The Federal Reserve Open Market Committee’s most recent meeting on September 21, 2022 they unanimously voted on another rate increase of 0.75%.
This marks the third consecutive 0.75% prime rate hike the FED has made this summer. When they initially raised rates by 0.75% in June it was the first rate hike of its kind since 1994.
So When Will CD Rates Go Up?
Since the Fed’s base federal funds rate for overnight loans to banks sets the benchmark for all other interest rates in the United States, the Fed’s policy shift is going to continue to affect the interest rates for other financial securities, including certificates of deposit (CDs), money market accounts, savings accounts, etc.
However, savers should keep their expectations in check, as rates on the savings side climb at a much slower pace than their counterparts on the loan side.
The difference in rates between what banks’ offer on their loans versus what they offer on their savings deposits is referred to as the “spread.” This is where banks generate their profit and also why mortgage rates are rising much faster than CDs and savings rates.
According to Freddie Mac, average 30-year fixed-rate mortgages have risen from 3.45% in January 2022 to 5.41% in July of 2022. That is almost a 2 percent rise in 6 months. To put that in perspective, average 12 month CD rates have only risen from 0.13% to 0.46% in that same time frame, according to the FDIC.
Will CD Rates Go Up in 2022 and 2023
The general consensus among financial analysts and economists is a resounding yes, CD rates will continue to tick upward throughout September, October and the rest of the year and into 2023.
APYGUY has already noted a number of significant CD rate increases from online banks, traditional banks, nationally available credit unions and brokered CDs.
Here are some noteworthy movements in CD rates we’ve covered since May 2022.
| Institution | CD Rate Δ | Best APY |
| PenFed Credit Union | Up 1.85% | 3.20% |
| Ally Bank | Up 2.20% | 3.10% |
| Capital One | Up 2.05% | 3.25% |
| Synchrony Bank | Up 2.50% | 3.50% |
| Marcus by Goldman Sachs | Up 2.25% | 3.25% |
| Bread Savings | Up 2.75% | 3.65% |
| Edward Jones (brokered CD) | Up 1.65% | 3.90% |
| Fidelity (brokered CD) | Up 2.55% | 4.10% |
| Vanguard (brokered CD) | Up 1.65% | 4.30% |
To put these rate bumps and current best APYs (annual percentage yields) into perspective, below is the national average for CDs terms 6 months to 6 years according to FDIC data pulled September 21, 2022:
- 6 month CD rates – 0.34%
- 12 month CD rates – 0.60%
- 24 month CD rates – 0.64%
- 36 month CD rates – 0.66%
- 48 month CD rates – 0.63%
- 60 month CD rates – 0.74%
To get an idea of how fast these averages are climbing, here are the national averages for 12 month CDs and 60 month CDs every month since the start of 2022:
| 12 month CD avg. | 60 month CD avg. | |
| January | 0.13% | 0.28% |
| February | 0.14% | 0.28% |
| March | 0.15% | 0.29% |
| April | 0.17% | 0.32% |
| May | 0.21% | 0.39% |
| June | 0.25% | 0.48% |
| July | 0.31% | 0.57% |
| August | 0.46% | 0.64% |
| September | 0.60% | 0.74% |
Will Savings Account Rates Go Up in 2022 and 2023
Yes, the average APY for all variable-rate accounts including online savings accounts, interest checking accounts and money market accounts will undoubtedly rise throughout the remainder of 2022 and into 2023.
Here are some of the noteworthy upward movements on yields we’ve covered over summer:
| Institution + Account | Rate Δ | APY |
| Ally Online Savings Account | Up 1.60% | 2.00% |
| Robinhood Cash Management | Up 1.20% | 1.50% |
| Bask Bank High Interest Savings | Up 1.73% | 2.53% |
| Capital One Performance 360 | Up 1.50% | 2.00% |
| First Foundation Bank Online Savings | Up 1.65% | 2.25% |
We also saw new accounts hit the market this year. Most notably SoFi’s Checking and Savings account featuring an APY up to 2.00% as well as PayPal’s high yield savings account featuring an APY of 2.15% which launched in May 2022.
Interest Rates Going Forward
During the September meeting FED officials noted that they intend to continue to increase benchmark rates to around 4.4% by the end 2022.
This suggests another 0.75% and 0.50% rate hike may be in store for the final two FED meetings of the year. The FED meets next on November 1st and 2nd and then again on December 14th and 15th.
A Look at Certificates of Deposit
Certificates of Deposit (CDs) are deposit accounts held at banks or credit unions that provide fixed interest rates for a specific period of time. CDs differ from savings accounts in two primary ways:
- CDs are time deposits – that is, the money put into a CD is set to remain invested for a specified period of time, such as six months, a year, three years, or five years. Investors can withdraw their funds early, but incur an early withdrawal interest rate penalty for doing so.
- The interest rate earned with a CD is usually a fixed rate, while the interest rate paid on a regular savings account is commonly a variable rate. There are variable rate CDs available, but the vast majority are fixed rate.
CDs are favored by investors with a low risk tolerance, as they are considered one of the safest types of investments, being insured by the Federal Deposit Insurance Corporation (FDIC) just like other deposit accounts at a bank.
The downside of CDs is the fact that their real rate of return rarely keeps pace with inflation. Case in point: with even the best current CD rates around 4.00% and inflation around 8.3%, CD investors, while earning some nominal rate of return, are still encountering a negative real rate of return.
The only time CD investors win big real rates of return is when they invest in a long-term CD when interest rates are extremely high, and then prevailing interest rates drop substantially (along with inflation) over the term of their CD deposit.
However, most CD investors readily accept the reality of relatively low real returns. They are typically much more concerned with having a safe investment that earns some rate of interest than they are with having a growth investment that stands a good chance of being able to outpace inflation.
Past Trends and Future Projections for CD Rates
Throughout 2021, even as inflation climbed higher, CD rates dropped lower. By the end of the year, the average rate for one-year CDs had dropped from 0.21% to 0.14%. The average rate for five-year CDs fell from 0.36% to 0.26%.
But with the Fed continuing to raise rates aggressively throughout 2022 to combat a stubborn rate of inflation, CD rates should also continue to inch upward. With the current average yield for a 12 month CD sitting at just 0.60% APY it is still up 0.47% in 2022 where it started the year at a paltry 0.13%.
It’s likely CD rates on average will continue their sluggish move upward, but outliers such as newly launched online-banks or other banks in greater need of consumer deposits may be shiny anomalies.
For example, while the average 12 month CD has yet to hit 0.75%, top yields from online banks are already creeping over the 3.0% APY mark for 12 month terms.
Bigger banks and older traditional banks will likely be the slowest to raise rates for savers.
Bankrate’s chief financial analyst, Greg McBride, cautions that banks may be a bit stingy with interest rate increases. According to McBride, “Most banks, and big banks in particular, are sitting on a pile of deposits and will be very hesitant to pass along higher yields to savers if they don’t need more deposits.” That fact may further dampen the direct effect of increases in the fed funds rate on CD yields.
However, in the long run, this would ideally be offset by the quantitative easing the FED is embarking on to unload their balance sheet. This means less ‘free-money’ for banks to loan out from the FED and a stronger demand for consumer deposits from these institutions.
Alternate Scenarios that May Impact CD Rates
There are, of course, at least two alternative scenarios regarding probable CD rates for the remainder of the year and into 2023.
First, even if inflation continues to go higher, if the economy begins to stall out significantly, sparking fears of a recession or even a depression, then the Federal Reserve may alter its policy and change course yet again. It may postpone further rate hikes, or even abandon them altogether and turn back to cutting rates.
This seems unlikely though, as the FED has noted it won’t back down to some economic pain as long as employment stays relatively stable.
The other possible scenario is that inflation keeps increasing unabated, pushing the Federal Reserve into making more and/or higher interest rate hikes. In that event, the best available CD rates could well crest the 5-6% mark or more.
How to Find the Best Interest Rates on CDs
There are a number of banks that offer interest rates that are significantly higher than the average rate, on both savings accounts and CDs. The trend in recent years has shown the best CD interest rates tend to be offered by the growing number of “online only” banks. Since they don’t have the massive overhead expense of physical branch offices to contend with, online banks have more free cash flow that they can use to entice depositors by offering higher yields on CDs. Among the banks offering the highest CD yields recently are Bread Financial (formerly Comenity Direct), Barclays, Synchrony, and Marcus by Goldman Sachs.
With the Fed forecasting several more interest rate hikes in 2022, it’s not a bad idea to check CD rates after every Fed meeting. And if you’re considering putting money into a CD right now, you may also want to consider a high yield online savings account so that you can benefit from any future interest rate increases. Alternatively, you might consider only investing in short-term, six-month CDs, hoping to have the opportunity to reinvest six months from now for a higher yield.
Alternatives
You may be able to earn higher returns while still holding investments that are considered very safe by making investments in alternatives to CDs.
One such alternative is a money market account. Some money market accounts pay higher interest rates than most CDs. They also offer the flexibility that CDs lack, as you can withdraw your money any time without suffering any interest rate penalty.
Another alternative investment is a tax-free municipal bond. Being tax-free already gives such an investment an advantage over a CD. You can also get a much higher return on investment (ROI) with municipal bonds, many of which are currently paying interest rates above 5%. Municipal bonds are not quite as safe an investment as CDs, but while the possibility of the bond issuer defaulting on interest rate payments does exist, such defaults have, historically, been very rare.
One often overlooked alternative investment, one that’s perfectly safe and tax-free, is, instead of depositing money in a certificate of deposit, using the money to pay down high interest rate debt, such as credit cards. Paying off the balance on a credit card that charges 19% annual interest has the same net effect on your finances as earning a 19% return on investment – with the added benefit that making such a move doesn’t incur any tax liability, thus, making for a 19% tax-free return on investment.
Treasury Yields
Short-term US Treasury Yields are also up across the board since the beginning of September and are currently paying higher yields than CDs. Below are current US treasury yields available as of market close on September 20, 2022 (source).
| Term | Yield |
| 1 month | 2.57% |
| 2 months | 3.05% |
| 3 months | 3.35% |
| 6 months | 3.86% |
| 1 year | 4.03% |
| 2 years | 3.96% |
| 3 years | 3.94% |
| 5 years | 3.75% |
| 7 years | 3.69% |
| 10 years | 3.57% |
| 20 years | 3.84% |
| 30 years | 3.59% |
CD Rates Moving Forward – Summary
The short and sweet of it is that, given the Federal Reserve’s current stance on interest rates, the best CD yields will continue to rise throughout the remainder of 2022 and into 2023.
FAQs
Below are frequently asked questions by consumers.
Do CD Rates Go Up with Inflation?
Generally speaking CD rates are not directly correlated with the rate of inflation.
That said, the measures the FED tends to use to address inflation – like quantitative tightening and raising prime rates – does put upward pressure on CD rates.
Do CD Rates Go Up with the Prime Rate?
The prime rate set by the FED is the primary factor banks and credit unions use when determining the rate to charge on a loan to consumers. It also impacts the rates they provide on deposit accounts such as CDs and savings accounts.
Banks and credit unions use this prime rate because it is the rate they are charged by The Federal Reserve to fund their loan products.
Do CD Rates Go Up During a Recession?
Usually no. The Federal Reserve’s primary lever used to deal with a recession is lowering prime rates. This happened in the 1980’s and more recently with the 2008 recession where rates dropped from over 5% to historic near zero lows. CD rates followed suit in both instances.
That said, consumers still tend to flock to CDs more so in uncertain economic times.
Note – Compounding Returns: Whenever one of your CDs matures, you can choose to pocket the earned interest and just reinvest the principal amount. However, you can get the benefit of compounded returns by reinvesting the total of your original principal, PLUS the interest you earned. For example, if you invest $1,000 in a five-year CD paying 3% interest, at maturity your CD will have earned $159.27 in interest. If you reinvest just the $1,000 principal, then you will again earn $159.27 interest in five years. However, if you invest your principal amount and your earned interest – $1,159.27 – then at the end of the next five years, you will have earned $343.91 in interest. That’s more than double the $159.27 you earned the first five years. Roll it all over again, and the next five years will earn you $557.96 in interest.
