Periodically, the Federal Open Market Committee decides whether to raise, hold, or lower the federal funds rate

Interest rates have historically been an indicator of the US economy's overall health.

The Federal Open Market Committee is a 12-member voting body that sits within the Fed

The committee meets every six weeks to decide whether to maintain, raise, or lower the federal funds rate, which determines all lending costs in the US. It consists of the seven permanent central board members, the president of the New York Fed, and four rotating heads of the other 11 regional banks.

The Federal Reserve's decisions can impact your money

Car loans, mortgages, business investments—these and more can be drastically impacted by the adjustment of the Federal Reserve’s federal funds rate. Alternatively, savers can earn higher, low-risk yields on their savings when the Fed’s target rate is higher.

The Fed operates within the open market as a competitive bidder of interest rates

Because it’s viewed as a risk-free platform to earn interest, whatever rate it sets becomes the default benchmark. To maintain its target rate prescribed by the Federal Open Market Committee, the Fed has various tools it offers both commercial banks and home loan institutions.

What’s the outlook for CD rates in 2025?

The federal funds rate can have a big impact on CD interest rates. That means it also affects the amount of money any given CD can earn you. To learn more about how CD rates will look in 2025, and how recent rate cuts correlate to that, read this article.

The CME FedWatch Tool predicts the likelihood of future rate changes

It's based on federal fund futures contract prices. At a Fed meeting in July 2024, for instance, Chair Jerome Powell once again decided not to lower rates, though he said cuts could be on the table in September.

'Floating rate' loans periodically adjust their interest rates in accordance with economic conditions

When the Federal Reserve began raising interest rates in 2022 to combat inflation, interest payments borrowers owed to private credit lenders increased accordingly. Private credit funds benefited as loan returns increased, making the asset class attractive to investors at the time.

No institution wields more power in US finance than the Federal Reserve, the central bank of the US—but opinion polls indicate that most Americans don't know what it does.

The Federal Reserve can set interest rates below zero

Interest rates, the cost of borrowing money, are the primary tool the Federal Reserve uses to control inflation. During periods of deflation, setting interest rates below zero penalizes saving, encourages banks to lend more and moves more cash through the economy.

Raising interest rates can help control inflation

While controlling a complex and dynamic economy is difficult, interest rates—more specifically, the rate at which banks lend each other money overnight—are a powerful tool. Generally, raising the rate makes purchases more expensive and cools an overheated economy.

The two-day marathon meetings of the Federal Open Market Committee follow a logical process of information sharing

In a stately room in the Eccles Building in Washington, DC, the 17 participants of the FOMC and their aides report on economic conditions and decide monetary policy.

Explore current CD interest rates

Data itself is not (exactly) a financial advisor, but it can help you decide between a variable or fixed rate CD, or CDs with different term lengths. A chart from the Federal Reserve shows the three-month trend of CD interest rates.

The Federal Reserve follows the health of the US economy by tracking the money supply

That includes all of the physical and electronic money in circulation. It tracks not only US coins and bills, but also the money that moves through bank deposits. The Fed uses metrics called trackers to follow different types of transactions through the money supply.

The Fed can use quantitative easing to stimulate growth once it has lowered the federal funds rate as far as it can go

This involves purchasing large-scale assets from banks beyond just Treasury bills and bonds. This effectively gives banks much more liquidity, with the hope that they will actively lend it out at cheaper rates and expand the economy. But quantitative easing runs the risk of sparking inflation.

While the Fed is involved in issuing new generations of cash, the way it adds to the money supply does not involve printers

The majority of money in circulation is credit, not cash. This credit, which acts similarly to direct deposit from employers, is added to bank accounts by the Federal Reserve. The Fed also employs tools like the federal funds rate and open market operations to expand or contract credit.

Different CDs can have different term lengths, interest rates, and more

For instance, if a bank needs more deposits to fund loans, then it may offer high interest rates to attract deposits. Alternatively, a large bank with sufficient deposit reserves may have less incentive to grow its CD portfolio, offering lower rates as a result.

Banks make money by loaning customer deposits and earning interest

This means the interest you earn on your deposits is lower than what the bank earns on the same amount. Banks often keep cash reserves (though a minimum requirement was rescinded in 2020) but generally invest in government bonds, corporate securities, and loans to other banks. During bank runs, depositors withdraw more than the bank has on hand.

For everyday Americans, a relatively high national debt can lead to higher interest rates on financial products such as mortgages.

The Federal Reserve is the most powerful financial institution in the US

The Fed controls the money supply, determines interest rates, and regulates the banking system. Established in 1913 after a volatile series of financial panics, the central bank has managed to retain its legitimacy despite broad critiques against its obscure and independent decision process.

Average three-month CD rates reached a historical high of 18.65% in December 1980

Comparatively, average three-month CD rates reached a low of 0.09% in June 2021 amid the economic turmoil of the COVID-19 pandemic. When inflation began to rise in 2022, the Fed began initiating rate hikes to incentivize saving.

The Federal Reserve didn't institute an official no comment period before meetings until 2011

Although Fed governors have largely practiced some version of a blackout period before Federal Open Market Committee meetings where the board decides where interest rates should be since the 1980s, the official blackout period wasn't formalized until 2011. During the blackout, members of the Federal Reserve generally aren't allowed to speak publicly on macroeconomic or monetary policy in order to avoid any confusion over the board's decisions.

How interest rates affect homebuying

Rising interest rates impact every aspect of buying a home. This five-minute article gives a high-level overview of the relationship between the housing market and interest rates.

Of the 12 voting policymakers at every Federal Open Market Committee meeting, 4 are present on a rotating basis

To allow for diverse regional perspectives in the votes on monetary policy, heads of regional banks hold voting power on two- or three-year cycles.

For every $100 you deposit, your bank puts a few cents in the FDIC insurance fund

This is a result of the 1933 Banking Act that established the Federal Deposit Insurance Fund. The law sought to prevent bank runs like those that decimated the banking industry amid the Great Crash and subsequent major depression. Today, individual depositors are insured up to $250K at each bank where they have an account.

During COVID-19, the Fed made drastic moves in attempts to shore up the US economy called quantitative easing

The Fed took an aggressive approach to help the US economy during COVID-19 beyond standard monetary levers, including broad purchases of mortgage-backed securities, Treasury securities, and more.

Congress mandated that the Fed streamline check payments

When it was first created in the 1910s, the Federal Reserve System became a crucial link between the nation's regional banks. The increasing number of checks used by the thousands of banks across the nation required a central operator, and the Fed was uniquely positioned to help. Learn more about the role the Fed played in the history of checks.

Use this student loan calculator to estimate monthly student loan payments.

Find out ways to get lower rates on private loans, such as applying with a cosigner.

Open-end and closed-end mutual funds differ in how they create and distribute shares.

Central bank independence is correlated with lower inflation on average

Executives may seek to influence the central bank to reduce interest rates for political points. Since its creation in the early 20th century, the US' Federal Reserve saw the most interactions from the president during the Nixon and Ford administrations.

Since its inception in 1938, Congress has raised the federal minimum wage 22 times

If you want all the details about when and why these rate increases happened check out this resource from the US Department of Labor.

Mutual funds are categorized as stock, bond, money market, and target-date funds.

In 2023, the US money supply fell at its fastest rate since the 1930s

The money supply tracks how much cash, as well as electronic funds like savings accounts, is circulating through the economy. And a downward turn can be a bad sign.

The federal debt ceiling 101

The debt ceiling periodically takes center stage as Congress debates whether to increase or suspend this self-imposed limit on its borrowing authority. Learn the basics on this crucial feature of US fiscal policy with this Q&A.

Certificates of deposit are low-risk savings tools that offer a stable way to grow your money over time.

BankFind is a tool that helps you find current and former FDIC-insured banking institutions

The tool from the Federal Deposit Insurance Corporation (also known as the FDIC) allows users to search for these institutions by name, location, and more.

33% of Americans say they don’t know very much about what the Fed does

While most Americans grasp the central bank’s impact on curbing inflation, they don’t know that the Fed is tasked with what is called a “dual mandate” to provide price stability and maximum employment. Furthermore, few understand the Fed is independent—it does not answer to Congress or the US president.

See a chart showing how much the US federal government pays in interest on its debt.

The Federal Reserve targets 2% inflation

It’s an arbitrary number originating from an offhand comment made by a New Zealand policymaker. The real objective is to maintain predictable prices for businesses and families to plan around while avoiding the dangers of deflation.

Treasury bonds, notes, and bills are critical vehicles for the federal government to raise money for public expenses and manage the national debt.

The US Government sells two types of savings bonds: EE bonds and I bonds

EE bonds have fixed interest rates that the buyer is informed of when they purchase the bond. I bonds, however, earn a rate that can change every six months. A comparative chart details the most significant differences between EE bonds and I bonds.

The central bank was designed to operate free of short-term political influence to prevent the Fed from making disastrous policy decisions

Although the Fed Chair and the six other Governors of the Board are appointed by the US president and approved by Congress, the Fed is not funded by congressional appropriation, and its board members are appointed to lengthy 14-year terms.

US inflation can generally be split into to two periods—before and after the Federal Reserve

A central bank itself does not mean significant inflation will occur, but economists generally point to factors like two world wars and the printing of money to finance the US federal deficit as primary drivers of price increases.

See every time the minimum wage has been raised.

Bond yields are the returns investors earn from a bond's interest—and they're a key economic barometer.

The first federal minimum wage wasn't set until 1938, when it was 25 cents per hour.

The federal deficit is the gap between what the US spends and what it collects.

Use a CD rate calculator

This CD Rate Calculator allows you to determine your interest earnings and total savings balance at CD maturity. Enter your initial deposit, your interest rate, and your term length in months or years. Click here to use it.

The debt ceiling is a legal cap on how much money the US government can borrow.

BlackRock sponsored the Federal Reserve's purchasing of corporate debt through exchange-traded funds during the COVID-19 pandemic, while it simultaneously sold some of its own shares on the secondary market—sparking controversy over potentially unfair advantages.