In September 2024, the Federal Reserve has continued its policy of raising interest rates in response to the ongoing inflation crisis. As a result, certificate of deposit (CD) rates have increased significantly, with the best short-term CDs (six to 12 months) offering rates around 4% to 4.5% APY. The highest CD rate currently available is 5.5% APY, offered by Gainbridge® on its 5-year CD, with a $1000 minimum opening deposit required. Historically, CD rates have fluctuated in response to economic conditions and central bank policies. During the 2000s, CD rates were relatively higher due to the dot-com bubble and the global financial crisis of 2008. However, they began to decline as the economy slowed and the Federal Reserve cut its target rate to stimulate growth. By 2009, the average one-year CD paid around 1% APY, with five-year CDs at less than 2% APY. The trend of falling CD rates continued into the 2010s due to the Great Recession and the Fed's decision to keep its benchmark interest rate near zero. By 2013, average rates on 6-month CDs fell to about 0.1% APY, while 5-year CDs returned an average of 0.8% APY. However, between 2015 and 2018, as the Fed started gradually increasing rates again, there was a slight improvement in CD rates as the economy expanded. The COVID-19 pandemic in early 2020 led to emergency rate cuts by the Fed, causing CD rates to fall to new record lows. However, following the pandemic as inflation began to spiral out of control, the Fed hiked rates 11 times between March 2022 and July 2023. This led to higher rates on loans and higher APYs on savings products, including CDs. In conclusion, while the Federal Reserve's interest rate hikes have led to an increase in CD rates, it is important for investors to continue monitoring market conditions and adjusting their investment strategies accordingly.
