{"id":13803,"date":"2024-11-12T02:53:00","date_gmt":"2024-11-12T08:53:00","guid":{"rendered":"https:\/\/www.discover.com\/online-banking\/banking-topics\/?p=13803"},"modified":"2026-01-31T13:40:16","modified_gmt":"2026-01-31T19:40:16","slug":"how-are-cd-interest-rates-determined","status":"publish","type":"post","link":"https:\/\/www.discover.com\/online-banking\/banking-topics\/how-are-cd-interest-rates-determined\/","title":{"rendered":"How do CD rates work?"},"content":{"rendered":"\n

Interest rates may be on the move again. Following 11 rate hikes in 2022 and 2023, the Federal Reserve (or Fed) announced its first rate cut in four years in late 2024. Considering a long-term view of the Fed Funds rate<\/a>, however, rates are still elevated, and borrowing costs remain above average relative to the last couple of decades.<\/p>\n\n\n\n

Meanwhile, for those looking to earn interest on their money, Certificates of Deposit (CDs) still have historically attractive rates. A CD is essentially an agreement between you and your bank. You agree to deposit your money for a fixed amount of time, and, in return, the bank guarantees you a specific CD interest rate<\/a>. Because many institutions offer fixed rates on their CD offerings, savers can lock in favorable rates for a while, regardless of what the Fed may or may not do next?<\/p>\n\n\n\n

So, what are the current CD rates? And are CD rates going up or down?<\/p>\n\n\n\n

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How are CD rates determined? <\/h2>\n\n\n\n

Several factors influence how CD rates work, two of which have the greatest impact:<\/p>\n\n\n\n

Current CD rates are affected by the interest rate environment<\/h3>\n\n\n\n

If you\u2019re wondering when or how CD rates will move in 2025, you should consider the interest rate environment. The higher the interest rate, the more banks are typically willing to pay on deposits\u2014and the opposite is true when rates are low. Although it\u2019s not an exact science, you can expect that as the Fed raises or lowers its rates, banks and credit unions will likely follow suit.<\/p>\n\n\n\n

Current CD rates are affected by the length of time until maturity<\/h3>\n\n\n\n

So how do CD rates work? One factor is the length of time until it matures. This is known as the term of the CD, and it typically falls somewhere between three months and 10 years. As a rule of thumb, the longer the timeframe, the higher the CD rate typically is, though this is likely to change if the Fed is expected to lower rates.<\/p>\n\n\n<\/div>\n\n\n

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Are CD rates going up or down?<\/h2>\n\n\n\n

CD rates climbed steadily in 2022, according to Bankrate<\/a>. And since CD rates are influenced by the Fed\u2019s actions\u2014and some believe the Fed may continue to raise interest rates in 2023, albeit at a slower, more deliberate pace, according to another Bankrate article<\/a>\u2014it\u2019s probably a good guess that CD rates will also continue to rise, at least for a while.<\/p>\n\n\n\n

The Fed typically decides whether to raise rates, lower rates, or keep rates unchanged during its Federal Open Market Committee (FOMC) meetings, which happen eight times a year. In 2022 and 2023, the Fed raised the target federal funds rate<\/a> (also known as the Federal Reserve interest rate) 11 times to a 23-year high in mid-2023:<\/p>\n\n\n\n

Target rate<\/strong><\/th>Rate change<\/strong><\/th>Meeting<\/strong><\/th><\/tr><\/thead>
0.25% to 0.50%<\/td>+25 basis points, or 0.25%<\/td>March 2022<\/td><\/tr>
0.75% to 1.00%<\/td>+50 basis points, or 0.5%<\/td>May 2022<\/td><\/tr>
1.50% to 1.75%<\/td>+75 basis points, or 0.75%<\/td>June 2022<\/td><\/tr>
2.25% to 2.50%<\/td>+75 basis points, or 0.75%<\/td>July 2022<\/td><\/tr>
3.00% to 3.25%<\/td>+75 basis points, or 0.75%<\/td>September 2022<\/td><\/tr>
3.75% to 4.00%<\/td>+75 basis points, or 0.75%<\/td>November 2022<\/td><\/tr>
4.25% to 4.50%<\/td>+50 basis points, or 0.5%<\/td>December 2022<\/td><\/tr>
4.50% to 4.75%<\/td>+25 basis points, or 0.25%<\/td>February 2023<\/td><\/tr>
4.75% to 5.00%<\/td>+25 basis points, or 0.25%<\/td>March 2023<\/td><\/tr>
5.00% to 5.25%<\/td>+25 basis points, or 0.25%<\/td>May 2023<\/td><\/tr>
5.25% to 5.50%<\/td>+25 basis points, or 0.25%<\/td>July 2023<\/td><\/tr>
4.75% to 5.00%<\/td>-50 basis points, or 0.5%<\/td>September 2024<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

In September 2024, however, this trend of rate hikes paused as the Fed announced its first rate cut in four years. Interest rates were lowered by 50 basis points, bringing the target rate to 4.75% to 5.00%.<\/p>\n\n\n\n

While rates are unlikely to fall dramatically\u2014barring another pandemic or economic crisis\u2014lower rates at the Fed level tend to mean lower interest rates across banking products, from savings accounts to loans and credit cards.<\/p>\n\n\n\n

As the Fed funds rate steadily climbed in 2022 and 2023, CD rates moved higher as well.<\/p>\n\n\n\n

How can I get the most favorable CD rates?<\/h2>\n\n\n\n

Against this backdrop, you\u2019re likely to wonder, \u201cWhen will CD rates go up again?\u201d It\u2019s impossible to predict since Fed policy depends on several factors, from labor-market strength to inflationary pressures. But for now, rates are still quite favorable for interest-earning assets like CDs, so it\u2019s still a good time to consider opening a CD account<\/a>.<\/p>\n\n\n\n\n\n\n\n

Like always, shopping around for the most competitive rates and terms is important. The Discover\u00ae<\/sup> high-yield CD<\/a>, for instance, allows you to earn guaranteed returns with terms ranging from three months to 10 years.<\/p>\n\n\n\n

Another strategy for collecting more interest is to lengthen the term of your CD.<\/p>\n\n\n\n

Here are some basic guidelines to follow when choosing the term of your CD:<\/p>\n\n\n\n