Current Bank Interest Rates

Current CD Bank Rates are on the rise. Back in May/June 2008, 6-month bank rates ranged from 3.35% to 3.50% and 1-year bank rates were around 3.70%. Now as the FOMC paused again and held the overnight rate (Fed Funds) at 2.00%, competition, demand, and inflation concerns are pushing short-term rates into the 4.00% to 4.25% range. The spread between Fed Funds and CDs is quite large at this time.

I did some research on historical Fed Funds. In 2005, Fed Funds were on the rise. The average rate was 3.25%. This compared to an average 6-month CD rate of 3.74% and 1-year rate at 4.19%. That is a spread of about 50 to 75 Basis Points (0.50% to .75%). In 2006, Fed Funds kept rising until they peaked at 5.25%. The average rate was 4.94%. The average 6-month bank CD rate was 5.28% and the 1-year was 5.40%. The spread narrowed to about 25 to 50 Basis Points. Matter of fact, the spread at one point was inverted. Fed Funds was higher than a 6-month CD Rate. This spread was maintained through 2007, as the Fed Funds was held at 5.25% through August. In September, the FOMC began lowering rates. They went from the 5.25% to our current 2.00% in a fairly short amount of time.


The FOMC is now caught between a rock and a hard place. The economy is still having a tough time so they are reluctant to raise the overnight rate. However, inflation has certainly been finding its way into our everyday lives. Once the Fed begins to raise rates the spread will most likely get smaller as banks will try to hold the line on their CD interest rates. The other most likely scenario is for the curve to flatten. Banks won't want to pay higher rates for any longer than they have too.

One thing to keep in mind is no one has a crystal ball. As current interest rates are rising, it probably makes sense to shorten up some of your CD terms and maybe even play the internet savings rate game (although it can be quite time consuming). However, don't get caught holding all shorter-term CDs. You never know what can happen. Back in 2006 and 2007 people kept thinking rates would just keep going up and many didn't do any longer-term CDs. However, those same people who have been facing rates in the mid 3.00% to low 4% are wishing they had done a few CDs with 5-year rates at 6.00%.

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