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CD rates are at a 3-year high—but you should wait a little longer to open one

December 7, 2022, 8:20 PM UTC
Photo illustration of a young man going over financial paperwork at a laptop.
CD rates have risen steadily over the past 12 months alongside the Fed’s rate increases.
Photo illustration by Fortune; Original photo by Getty Images

National deposit rates for 5-year certificates of deposit (CDs) have hit 0.98% in November, up from .39% just six months ago—although banks are offering as much as 3%–4% right now. Should you open a new CD right now? Actually, you should probably wait. The reason: The Fed. 

The reason is simple: With inflation still at an all-time high, consumers could see one more rate hike from the Fed before 2022 when it holds its last meeting on December 13 and 14. With these changes, CD rates have seen a lot of growth over the past year.

“We need to raise interest rates to a level that is sufficiently restrictive to return inflation to 2%,” said Federal Reserve Chair Jerome Powell in an address at the Brookings Institution last month. “There’s considerable uncertainty about what rate will be sufficient, although there’s no doubt that we’ve made substantial progress, raising our target range for the federal funds rate by 375 basis points since March. As our last post-meeting statement indicates, we anticipate that ongoing increases will be appropriate.”

When the Fed raises interest rates, consumers will face more expensive costs to take out a loan, higher credit card APRs, or mass layoffs within companies looking to reduce costs. On the flipside, higher rates can benefit savers in a big way. Savings account APYs tend to rise alongside the federal funds rate.

For those looking to take advantage of rising interest rates for deposit accounts, you may be asking: Should I lock in a certificate of deposit (CD) now or wait? Another rate hike could mean you can secure the highest possible APY and grow your money even faster. 

A look at CD rates over the past year

CD rates have been rising steadily over the past year, and an additional rate hike could push them even higher.

What considering before opening a CD

If you’re sold on putting your money into a CD, shop around and compare the rates offered across various banks and credit unions. Many offer high-yield CD options that can sometimes hit double or triple the national average—if not more. And because banks often raise rates immediately after a rate hike, waiting it out until the Fed makes its next move could translate to major savings for you. 

“The time for moderating the pace of rate increases may come as soon as the December meeting. Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level,” said Powell. "It is likely that restoring price stability will require holding policy at a restrictive level for some time. History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.” 

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