The Federal Reserve's actions, such as interest rate hikes or cuts, directly influence the rates offered on certificates of deposit (CDs). When the Federal Reserve raises interest rates, banks often raise CD yields to attract more deposits, which can benefit savers looking for better returns. Conversely, if the Federal Reserve lowers rates, CD yields may fall, making it less attractive to lock money away for a fixed term.
On September 16, 2026, the Federal Reserve raised its benchmark federal funds rate by 25 basis points, marking the first increase since July 23, 2026.1 The new target range for the federal funds rate is now 3.75% to 4.00%.2 Given this rate hike, it is important to assess how the Federal Reserve's decision may affect your overall savings strategy.
Understanding How CDs Work
Before we discuss what the Federal Reserve's decisions mean for certificate of deposit (CD) rates, we'll explain how CDs work.
A certificate of deposit (CD) is a financial product offered by financial institutions that provides a safe and secure way to save money while earning interest. A CD pays interest on your deposit for a specific period. In exchange, you agree not to withdraw your money during that time. When the CD term ends, known as the maturity date, you can withdraw your initial deposit plus accrued interest or roll the funds into a new CD.
Types of CDs Available
Several types of certificates of deposit (CDs) are available, each designed to meet different financial needs and goals. A traditional CD with a fixed rate is the most popular type. Many financial institutions provide fixed-rate personal CDs, business CDs and individual retirement account (IRA) CDs.
A traditional CD with a fixed rate offers a guaranteed interest rate on a one-time lump-sum deposit, as long as you leave the funds untouched. The interest rate locks in when you open the CD and stays unchanged until maturity, regardless of market fluctuations.
A variable-rate CD is another option, though less common than a fixed-rate CD. The interest rate on a variable-rate CD can change over time, so you aren't guaranteed the same return throughout the term. Specifically, your earnings can rise or fall based on the Federal Reserve's decisions regarding its benchmark federal funds rate.
Lastly, many financial institutions support a strategy known as "CD laddering." It involves holding multiple CDs with different maturity dates to take advantage of different interest rates and access funds at different intervals. In short, CD laddering balances liquidity and yield.
CD Rates Adjust in Response to Changes Made by the Federal Reserve
As we mentioned earlier, the Federal Reserve's benchmark federal funds rate can influence CD rates. Specifically, when the Federal Reserve raises or lowers interest rates, financial institutions typically adjust CD rates accordingly. When the Federal Reserve raised its benchmark rate by 0.25% on September 16, 2026,3 financial institutions faced higher borrowing costs.
To attract deposits, many financial institutions raised yields on new CDs. Responses to Federal Reserve rate hikes vary among financial institutions; some may adjust CD rates quickly, while others may take a month or longer.
Is This a Good Time to Open a CD?
Deciding whether to open a CD in today's economic climate depends on several factors. First, evaluate your short-term and long-term financial goals. For example, you may want to earn predictable interest on cash you don't expect to need during the CD term. Or you may want to lock away a lump sum of cash and leave it untouched for a future goal.
Next, review your overall budget, especially your monthly expenses, to determine how much you can deposit into a CD. Choose an amount that still lets you cover your daily expenses and leave some money for short-term needs and the occasional splurge.
Lastly, consider your liquidity needs to determine how long you can afford to keep funds locked away in a CD. If you need money for unexpected emergencies or expenses, and you don't have enough in a personal savings account, you may have to withdraw funds from your CD before it matures, which typically triggers penalty fees.
Will the Federal Reserve Raise or Lower Rates in the Future?
Predicting the Federal Reserve's actions can be challenging because of the complexity of the economic factors at play. However, a good approach is to closely monitor the Federal Reserve's past decisions and review current economic indicators, including inflation rates, employment data and overall economic growth. This can help you adjust your CD savings strategy accordingly.
If you expect the Federal Reserve to lower its benchmark federal funds rate in future meetings, it may be advantageous to open a CD now and lock in the rates your financial institution currently offers. However, if you think the Federal Reserve will raise its benchmark federal funds rate in upcoming meetings and you wait to open a CD, you may miss out on potential yields if the Federal Reserve lowers its rate.
When the Federal Reserve raised its benchmark federal funds rate on September 16, 2026, it marked the first rate increase since July 2023.4 If you want to take advantage of the higher yields on a personal CD, business CD or individual retirement account (IRA) CD, choose Ameris Bank.
