CD Rates Continue to Move Higher in 2018

CD rates in 2018 continue to move as banks and credit unions increase rates. Interest rates have been increasing since December 2016, when the Federal Reserve started increasing the fed funds rate. Since then, the Fed has increased the fed funds rate four times for a total of 100 basis points. You can see a list of fed funds rate changes going back to 2003 at The Fed - Open Market Operations.

During the same time, short term CD rates moved higher because the fed put upward pressure on short term interest rates. The highest CD rates on 3 month certificates of deposit have gone from 0.65 percent to the current rate of 1.50 percent.

6 month CD rates are currently at 1.90 percent, up from December 2016's rate of .85 percent. 1 year rates have increased from around 1.05 percent during December 2016 to the current CD rate of 2.07 percent.

Short term U.S. Treasury yields also had sharp moves higher the past 15 months. 3 month yields increased from 0.50 percent to yesterday's close of 1.62 percent. Yields on 6 month Treasuries are currently at 1.83 percent, up from around 0.60 percent. 1 year yields increased from around 0.90 percent to 2.00 percent. Source: U.S. Department of The Treasury - Daily Treasury Yield Curve Rates.

Future Outlook for CD Rates in 2018

We anticipate CD rates will continue to move higher in 2018 because the Fed will continue to increase the fed funds rate this year. The Fed's own projection materials, last updated in December 2017, shows the Fed projects the fed funds rate to be at 2.1 percent by the end of 2018. The current fed funds rate is at 1.50 percent, 60 basis points below 2.10 percent.

If the Fed's projections are correct, we will see short term CD rates move up another 60 to 75 basis points. 3 month CD rates would be around 2.25 percent, 6 month CD rates would increase above 2.50 percent and 1 year CD rates would be around 3.00 percent.

One important point to make is that the Fed's last projection in December was before the tax cut. We may very well see the Fed increase rates because of the inflationary pressure of the tax cut. The next set of projection materials will be released when the Fed wraps up their next meeting on March 21st.

The good news is that CD rates are moving higher and are likely to continue the uptrend this year and into 2019.