ClearValue Lending

How do CD rates work?

A CD's APY is fixed the day you open it and locked for the full term — it won't move even if market rates change. What sets that rate is mainly the Fed funds rate and Treasury yields of similar maturity, plus how badly a given bank wants deposits. As of the FDIC's July 2026 national data, the average CD APY ranges from about 0.23% (1-month) to 1.68% (12-month) — well below the roughly 4%+ top nationwide rates competitive online banks and credit unions post.

A certificate of deposit (CD) pays a fixed annual percentage yield (APY) for a set term — commonly 3 months to 5 years — in exchange for leaving the money untouched until maturity. Unlike a savings or money market account, the rate doesn't float: whatever APY you're quoted the day you open the CD is the rate you earn for the entire term, regardless of what the Fed does afterward.

What actually sets a CD's rate

  • The Fed funds rate — the Federal Reserve's benchmark rate is the biggest single driver of the whole deposit-rate environment. FOMC rate decisions are published at federalreserve.gov/monetarypolicy/openmarket.htm.
  • Treasury yields of matching maturity — a 1-year CD competes for your money against a 1-year Treasury bill, so banks price CDs relative to where similar-duration Treasuries are trading, not just the Fed's headline rate.
  • The yield curve shape — when short-term rates sit above long-term rates (an inverted curve), shorter CDs can pay more than longer ones — which is why a 6- or 12-month CD sometimes out-yields a 5-year CD.
  • Bank-specific funding need — online banks with lower overhead compete harder for deposits and post materially higher APYs than branch-heavy national banks, independent of the rate environment.

National average vs. the top nationwide rates

There's a wide gap between what the "average" bank pays and what the most competitive online banks and credit unions pay. Per the FDIC's National Rates and Rate Caps table (dated July 20, 2026 — the FDIC publishes this every third Monday of the month): the national average APY was 0.23% for a 1-month CD, 1.15% for 3-month, 1.38% for 6-month, 1.68% for 12-month, 1.56% for 24-month, 1.34% for 36-month, 1.26% for 48-month, and 1.36% for 60-month. Nationwide, rate-competitive online banks and credit unions routinely post APYs several multiples higher than that national average on the same terms — which is why comparing your local branch's CD rate to the national average alone can understate how much better a competitive offer looks.

Why a CD's rate doesn't move like a savings or MMA rate

A savings or money market account's rate is variable — the bank can raise or lower it at any time as the rate environment shifts. A CD trades that flexibility for a rate lock: once opened, the bank can't cut your rate, but you also can't capture a rate increase without opening a new CD. That trade-off is the whole point of a CD — it's a bet that you'd rather lock in today's rate than risk your account's rate drifting lower.

Locking the rate also locks the money

Withdrawing before maturity typically costs an early withdrawal penalty — commonly 90 days of interest for terms under a year, up to 6-12 months of interest on multi-year terms, varying by bank. Only put money in a CD you're confident you won't need before the term ends.

What the sources say

  • The FDIC's national rate is defined as the average of rates paid by all insured depository institutions and credit unions for which data is available, weighted by each institution's share of domestic deposits — published every third Monday of the month. — FDIC — National Rates and Rate Caps
  • Federal Reserve FOMC rate decisions are the primary driver of the deposit-rate environment across savings, MMA, and CD products. — Federal Reserve — Open Market Operations
  • Regulation DD requires banks to disclose APY (not just a nominal rate) on deposit account advertisements and statements, so consumers can compare CD offers on equal terms. — CFPB — Regulation DD

Key takeaways

  • A CD's APY is fixed at opening and locked for the full term — it won't rise or fall with the market afterward.
  • The Fed funds rate, matching-maturity Treasury yields, and each bank's funding needs set the rate you're offered.
  • The FDIC's national average CD APY (July 2026: 0.23%-1.68% depending on term) sits well below top nationwide online-bank/credit-union rates.
  • An inverted yield curve can make a shorter CD pay more than a longer one — check multiple terms rather than assuming longer always wins.
  • Early withdrawal typically forfeits several months of interest — only lock money you won't need before maturity.

For a ranked, currently-updated comparison of specific CD offers, see our best CD rates guide. To line up live CD and savings APYs from multiple institutions side by side, ClearValue Banking's account comparison tool pulls current posted rates.

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