4 Key Factors That Determine CD Rates

CD rates don’t move randomly — they respond to specific economic forces that you can understand and use to your advantage. When you know what drives these rates up and down, you can better time your CD purchases and find the best possible rates.

Several key factors work together to determine the interest rates banks offer on a CD. Here’s what really matters when it comes to CD rates and how you can use this knowledge to maximize your earnings.

Bankrate insight: Timing your CD purchases

“Understanding what drives CD rates can help you make better timing decisions. When the Fed is raising rates, you might want to consider shorter terms so you can reinvest at higher rates later. When rates are falling, longer terms can lock in current rates before they drop further.”

— Hanna Horvath, CFP & Bankrate Banking Editor

1. Federal Reserve interest rate changes

The Federal Reserve’s benchmark interest rate is the single most important factor affecting CD rates. When the Fed raises or lowers the federal funds rate, CD yields typically move in the same direction.

The Federal Open Market Committee meets eight times a year to evaluate economic conditions and decide whether to adjust interest rates. These decisions are based on factors like inflation levels, employment data and overall economic growth.

When the Fed raises rates, banks generally increase the interest they pay on deposits, including CDs. This happens because higher federal funds rates make it more expensive for banks to borrow money from each other, so they need to attract more deposits by offering better yields to customers.

The opposite occurs when the Fed cuts rates. Banks typically lower their deposit rates because they can borrow money more cheaply and don’t need to compete as aggressively for customer deposits.

Learn more: How Federal Reserve decisions affect your savings.

Recent history shows this relationship clearly. The Fed raised rates seven times in 2022 and three additional times in 2023, and CD rates climbed steadily throughout this period and peaked in late 2023.

The average one-year CD is 2.03 percent APY as of July 30, 2025. The most competitive banks are offering APYs of up to 4.40 percent on one-year CDs.

2. CD term length

Traditionally, longer-term CDs offer higher rates than shorter-term ones. This makes sense because banks want to reward customers who commit their money for extended periods, and longer terms give banks more certainty about their funding.

However, current market conditions have created what economists call an inverted yield curve. This means some shorter-term CDs are actually paying higher rates than longer-term options.

This unusual situation typically occurs when markets expect interest rates to fall in the future. Banks don’t want to commit to paying high rates for five years if they think rates will drop significantly.

This inversion creates opportunities for savers. You might find that a two-year CD pays more than a five-year CD, allowing you to earn higher returns while keeping your money available sooner. Check out the top rates on one-year and five-year CDs.

When comparing CD terms, don’t assume longer automatically means better returns. Check rates across different term lengths to find the best combination of yield and flexibility.

Use Bankrate’s CD calculator to compare how different terms and rates affect your potential earnings over time.

3. Competition among banks

Banks compete for deposits, and this competition directly affects the CD rates they offer. When a bank needs more cash to fund loans or meet regulatory requirements, it might boost CD rates to attract new customers.

This competition is particularly intense among online banks and smaller, regional institutions. Online banks often offer significantly higher CD rates than large traditional banks because they need competitive rates to attract customers away from established institutions.

For instance, while major banks like Chase and Bank of America might offer CD rates around 0.01 to 0.03 percent, online banks frequently offer rates of 4 percent or higher on similar terms.

Market conditions can affect competition. When banks are flush with deposits, they have less incentive to offer high CD rates. When they need more funding, rates tend to rise as institutions compete for your money.

Related reading: Online banks vs. traditional banks: Which offers better CD rates?

4. Treasury yield changes

U.S. Treasury yields significantly influence CD rates because banks invest much of their deposit funding in government securities. When Treasury yields rise, banks can afford to pay higher rates on CDs. When Treasury yields fall, CD rates typically follow.

Banks use the money from customer deposits for two main purposes: making loans and investing in safe securities like Treasury bonds. The return they earn on these investments affects how much they can afford to pay depositors.

Treasury yields change based on investor demand, economic expectations and Federal Reserve policy. When investors expect stronger economic growth or higher inflation, Treasury yields tend to rise. Economic uncertainty or expectations of Fed rate cuts typically push Treasury yields lower.

The relationship between Treasury yields and CD rates isn’t always exact, but they generally move in the same direction. A bank might offer CD rates that are slightly higher or lower than comparable Treasury yields, depending on their funding needs and competitive position.

How to find the best CD rates

Finding the best CD rates requires shopping around and comparing offers from multiple institutions. Here’s how to find the most competitive yields available.

• Shop around systematically. Don’t settle for the first rate you see or assume your current bank offers competitive yields. Online banks and credit unions often significantly outpace traditional banks on CD rates.

• Check minimum deposit requirements. Some high-yield CDs require substantial minimum deposits — sometimes $1,000 or more. Make sure any bank you’re considering doesn’t require more money than you plan to invest.

• Look beyond the biggest names. While major banks offer convenience and name recognition, they typically offer much lower CD rates than smaller institutions. Online banks, in particular, often provide the most competitive yields.

• Consider credit unions. Many credit unions offer excellent CD rates to their members. If you qualify for membership in a credit union, their rates are worth checking.

• Read the fine print. Some advertised rates are promotional offers with specific requirements or limited-time availability. Make sure you understand all terms before committing your money.

Let Bankrate do the comparison work

Rather than visiting dozens of bank websites individually, use Bankrate’s CD rate comparison tool to see current rates from multiple banks in one place.

Should you get a CD right now?

Whether a CD makes sense for you depends on current market conditions, your financial goals and your comfort with locking up money for a set period.

Current market conditions favor CDs in many ways. With rates still at decade-long highs, CDs now offer returns that can help your money grow while staying completely safe.

Consider a CD if you have money you won’t need for the CD’s term, want guaranteed returns without market risk, can find rates that beat high-yield savings accounts or want to lock in current rates before they potentially fall.

Skip CDs for now if you might need the money before the term ends, can find better rates in high-yield savings accounts, expect rates to rise significantly in the near future or prefer keeping your money more accessible.

The key is being realistic about your situation. CDs work best when you have specific money you can truly commit for the full term and when the rates justify giving up liquidity.

Ready to explore your options? Compare today’s best CD rates across different terms and institutions, or explore high-yield savings accounts if you want competitive rates with more flexibility.