Whether you’ve been keeping an eye out on the current interest rates or not, we all know that the greater the interest rate, the greater the potential we have to earn more. Fortunately for us, Certificates of Deposit rates are rising, but the important question is why is that happening and what does that mean for me?

Why are CD rates up?

The Federal Reserve has been hiking rates; specifically, federal funds rates. Since 2022, we’ve seen 11 rate hikes, a solution the central bank hopes can slow down the economy enough to moderate price growth.

In March 2022, the Federal Open Markets Committee (FOMC) began raising the target range by 25 basis points, or 0.25% which brought federal interest rates between 0.25% to 0.50%. Since then, after 11 more spikes in interest, we’ve seen changes between 25 to 75 basis points, which has brought the current Federal Fund rate as of November 2023 between 5.25% to 5.50% – the highest it’s been in 22 years.

Unfortunately, for those looking to borrow, it may be worth it to wait for rates to go down. But for those looking to deposit cash, it is a great time as you can earn more on your savings.

What are the current CD rates?

That brings us to our next point of interest, the current rates. When inflation runs hot, short-term CDs – one year or less — often do too.

Annual percentage yield or APY, is the true rate of return on your investment, including compounding interest. Compounding interest doesn’t just include the interest earned on what you’ve deposited, but it also includes the additional interest you earn on the interest that is reinvested.

In short, you’re earning money, on top of the money you’re making on your initial deposit! Interest rates for certificates of deposit and high-yield savings accounts have jumped from less than 1% up to over 5% APY in just a few years. And CD rates have seemed to move up faster than savings rates at most financial institutions (FIs). As CD rates continue to go up at some FIs, and have lowered slightly for select terms, most CD rates are still between 4% and 5.50% APY. For example, if you were opening a 12-month term CD with a principal amount of $5,000 at a rate of 5.50% APY, you’d earn $274.76 of interest at maturity as long as you leave the interest to compound on a daily basis. If you withdraw the interest on a quarterly basis, you will receive $67.32 per quarter, times 4 quarters for a total of $269.98; $4.78 less. This may not seem like a significant difference, but the more you deposit, and the higher the rate, the compounding interest can make a big difference in what you earn.

Why should I care?

Rates are currently high, but who knows how long they will remain. The most essential factor is that current CD rates provide an attractive incentive to reach your savings goals. And now is a great time to invest in a CD.

Check out CD Valet’s earning calculator here to determine your estimated earnings at maturity with the terms and principal amount that will help you reach your financial goals.

FAQs

Why are CD rates on the rise?

CD rates are increasing due to the Federal Reserve hiking federal funds rates, reaching the highest levels in over two decades.

How do climbing CD rates benefit depositors?

Rising CD rates provide an opportunity for depositors to earn more on their savings, making it an ideal time to invest in CDs.

What is the impact of compounding interest on CD earnings?

Compounding interest, including reinvested interest, enhances CD earnings over time, potentially resulting in significant returns.

Why should I care about climbing CD rates?

Climbing CD rates offer an appealing incentive to maximize your savings, and CD Valet provides valuable insights and tools to help you make informed decisions.

How do I shop around for the best CD rates with CD Valet?

Explore over 25,000 CD rates from 3,100+ financial institutions nationwide on CD Valet, connecting consumers and institutions to compare and choose the best rates.