Investors are getting more options to lock in 4% yields on certificates of deposit, even as the Federal Reserve holds interest rates steady. On Wednesday, the Fed decided to keep the federal funds rate between 3.5% and 3.75%. Looking ahead, market participants are pricing in a rate hike later this year, according to the CME Fedwatch tool . The latest move comes from Synchrony Financial , which raised the annual percentage yield on its 12-month CD by 30 basis points to 4% last week. One basis point equals 1/100th of a percent, or 0.01%. Three other institutions — Bread Financial , Capital One and Sallie Mae — also boosted their yields this quarter, according to BTIG. The increases are being seen beyond these online banks. As of June 26, 639 banks marketed rates above 3.5% on a one-year, $10,000 CD, according to S & P Global Market Intelligence . That is up from 583 since the end of the first quarter, although down from the 1,006 a year ago, analyst Zain Tariq said in a research report last week. Forty offer above 4%, a doubling since the end of the first quarter, he said. However, BTIG is seeing a different trend in high-yield savings accounts, which saw no rate moves last week but had multiple decreases this quarter. “The cuts to Savings Rates, to us, signal that very near-term deposit competition is relatively light,” analyst Vincent Caintic said in a note Friday. “On the other hand, the CD rate increase implies expectations that Savings Rates should increase in the next year or so, which we think is due to forecasts for higher Fed Funds Rates.” Rising yields squeezing margins The rise in CD rates also increases expectations that banks’ net interest margins will be pressured for the next 12 months, he said. The institutions have to strike a balance between offering attractive yields on deposits and making money from loans and mortgages. “Deposit costs are squeezing margins at US banks and there is no near-term relief in sight, even as certificate of deposit (CD) repricing waves lock in higher funding costs well into 2027,” S & P Global’s Tariq wrote. He expects loan growth to slow from 2025 levels. “Despite easing regulations, new loans will be difficult to come as banks continue to face competition from nonbanks,” he said. “Funding these loans will also become more expensive as banks battle for deposits by marketing higher rates or turning to more expensive borrowings.” That matters to investors, since if margins become too tight, banks may look to reduce their CD rates. However, margins are squeezed — not collapsing, Tariq pointed out. “[W]ith credit holding up and deal activity accelerating, US bank earnings will continue to grow — though the path to expansion is narrowing,” he said.
