Top CD rates today: May 2, 2024 | Fed holds rates steady (and what that means for CDs)

The Federal Reserve announced Wednesday that it will continue to leave rates unchanged, after several months of higher-than-expected inflation. Savers may be left wondering what the latest Fed decision means for interest rates on deposit accounts, including certificates of deposit (CDs).

Yields on competitive CDs tend to move in lockstep with the federal funds rate, so savers may continue to reap the benefits of elevated APYs. “That will literally translate to money in the bank, so to speak, for those who opt for higher yields, which is highly recommended,” says Mark Hamrick, Bankrate senior economic analyst. “The Federal Reserve is essentially doing savers a favor by opting for higher rates in the coming months.”

Locking in a high annual percentage yield (APY) on a CD now means you’ll earn that same rate throughout the entire term, even if APYs on new CDs drop. Bankrate’s table below shows top CD yields across terms from three months to five years.

Today's top CD rates by term

CD term	Institution offering top APY	Highest APY	National average APY	Estimated earnings on $5,000 with top APY
3-month	Popular Direct	5.30%	1.21%	$65
6-month	Popular Direct	5.30%	1.67%	$131
9-month	Forbright Bank	5.30%	N/A	$197
1-year	CIBC Bank USA	5.36%	1.74%	$268
18-month	First Internet Bank of Indiana	5.04%	1.80%	$383
2-year	First Internet Bank of Indiana	4.82%	1.51%	$494
3-year	First Internet Bank of Indiana	4.66%	1.40%	$732
4-year	First Internet Bank of Indiana	4.50%	1.47%	$963
5-year	First Internet Bank of Indiana	4.55%	1.41%	$1,246

Note: Annual percentage yields (APYs) shown are as of May 2, 2024. APYs for some products may vary by region.

N/A: Not available; Bankrate doesn’t track national averages for the 9-month CD term due to limited available data. Estimated earnings are based on the highest APYs and assume interest is compounded annually.

What did the Federal Reserve do with rates this week?

The Fed chose to hold rates steady on May 1, which marked the sixth rate-setting meeting that rates were left untouched. Rates stand at a 23-year high, and the Fed has kept them unchanged recently due to stubborn inflation. After this week’s meeting, the next Fed meeting is scheduled for June 11-12.

What the current rate environment means for CDs

In 2022 and 2023, the Federal Reserve raised its benchmark interest rate a total of 11 times, bringing its current target range to a 23-year high of 5.25-5.50 percent. However, the Fed has left rates unchanged for five straight meetings, due to inflation not slowing as quickly as it has in the past.

Yields on competitive savings accounts and CDs tend to move in lockstep with the Fed’s interest rate moves. As such, many banks increase their yields when the Fed raises rates, and they lower yields when the federal funds rate drops. While the Fed has held rates steady since July 2023, top CD APYs ended up peaking in late 2023 and have since been decreasing gradually.

Is it still a good time to open a CD? “Even though CD yields have pulled back a bit, you’re still able to lock in yields that are well in excess of inflation and do so for multiple years,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “The declines will likely accelerate as we get closer to the Fed beginning to cut interest rates, so there is no sense in waiting.”

CD FAQs

• Is investing in a CD right for me?

  Whether you should invest in a CD depends on your own personal financial situation and goals. A CD offered at a federally insured bank or credit union can be a safe place to park your funds while earning a guaranteed APY. Many savers turn to CDs to lock in a high interest rate if they believe rates will start to decline soon.

  A CD can help you earn interest on money you're saving for a planned purchase. For instance, if you want to buy a house in five years, putting money in a five-year CD can give you a fixed APY on those funds during that term. Likewise, if you plan to take your dream vacation in a couple of years, a two-year CD could be a good place to grow those funds. Avoid an early withdrawal penalty by only committing money to a CD that you won't need access to before the CD matures.

• How is CD interest taxed?

  The IRS treats interest you earn from a CD as taxable income, whether you receive that money in cash or choose to reinvest it. For CDs with terms longer than one year, interest earned must be reported each year on your taxes, even if you don't cash in the CD until it matures.

  An IRA CD is an individual retirement account for which your money is in a CD. Contributions to a traditional IRA may be tax deductible, and they're taxed when you withdraw the funds. Conversely, contributions to a Roth IRA cannot be deducted from your annual income, and they're not taxed when you withdraw the money. You should consult a tax adviser regarding these two IRA CD options before making a choice.

• How does a CD differ from a savings account?

  Many banks and credit unions offer savings accounts and CDs, and both accounts earn some interest. There are a couple of key differences, however: A savings account generally allows you to withdraw funds any time, while a CD typically charges a penalty if you take out the money before the term ends. This makes a savings account a better place for funds you might need for emergencies.

  Another difference between the two is a savings account usually earns a variable APY that the bank can raise or lower at will, while a fixed-rate CD earns the same APY until it matures. As such, savers often choose to lock some funds in a CD when rates are likely to start falling, while many are apt to stick with a savings account if they believe rates will rise soon.

Research methodology

Bankrate calculates and reports the national average APYs for various CD terms. Factored into national average rates are the competitive APYs commonly offered by online banks, along with the very low rates often found at large brick-and-mortar banks.

In June 2023, Bankrate updated its methodology that determines the national average CD rates. For the process, more than 500 banks and credit unions are now surveyed each week to generate the national averages. Among these institutions are those that are broadly available and offer high yields, as well as some of the nation’s largest banks.