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Interest rates on certificates of deposits (CDs) had increased substantially from 2022 to 2023\u2014in lock-step with the Fed\u2019s rate hikes. Now, the national deposit rate for 5-year CDs is 1.43%, up from less than 0.50% in June 2022. Yet many banks are offering rates well above that\u2014the best 5-year CDs<\/a> have annual percentage yields (APYs) that exceed 4%, and some 1-year CDs are offering APYs well above 5%.<\/p>\n CD rates<\/a> had been on the rise due to the Fed\u2019s efforts to bring inflation down. However, as inflation has slowed\u2014from more than 9% in the summer of 2022 to about 3% now\u2014the Fed is holding steady with interest rates between 5.25% to 5.5%, the same as it has been since July of 2023. However, there is a chance a cut could be coming as early as the next meeting in September, depending on inflation rates.<\/p>\n So, should you open a CD now or wait<\/a>? It could very well be the time to buy, especially since many are speculating that the Fed may cut rates at the next meeting.<\/p>\n Interest rates are the Fed\u2019s number-one tool for fighting inflation. It raises rates to cool consumer spending, which decreases demand for goods and services. Higher rates, on the other hand, reduce demand and inflation.<\/p>\n For example, rising rates send mortgage rates<\/a> higher, too, making it more expensive to buy a home. Credit card APRs<\/a> also tend to increase, making it more expensive to carry a balance month-to-month.\u00a0<\/p>\n Rising rates tamp down on consumer demand and increase borrowing costs for companies. This can, in turn, cause unemployment to soar as companies may resort to layoffs in response to declining revenue.\u00a0<\/p>\n Higher rates have big benefits for savers. Savings account<\/a> and CD APYs tend to rise alongside the federal funds rate. If you\u2019re in a position to save in today\u2019s higher interest rate environment, investments like CDs could help accelerate your savings.<\/p>\n CD rates have skyrocketed since 2022: 1-year CD rates<\/a> have increased more than twelve-fold, with 3-year and 5-year CDs up nearly six-fold and five-fold, respectively.<\/p>\n\nWhat happens when the Fed raises rates<\/strong><\/h2>\n
A look at CD rates since June 2022<\/strong><\/h2>\n