The Federal Reserve's decision to keep the federal funds rate steady between 3.5% and 3.75% has not deterred banks from increasing their certificate of deposit (CD) rates. Synchrony Financial recently raised its 12-month CD yield by 30 basis points to 4%, joining other institutions like Bread Financial, Capital One, and Sallie Mae in boosting their rates this quarter.
According to S&P Global Market Intelligence, as of June 26, 639 banks offered rates above 3.5% on one-year CDs, a notable increase from 583 at the end of the first quarter, although still down from 1,006 a year ago. The number of banks offering rates above 4% has doubled since the end of the first quarter.
However, the high-yield savings accounts have not seen similar increases, with some rate cuts indicating less competition for deposits in that area. Analysts suggest that the rise in CD rates may pressure banks' net interest margins as they balance attractive deposit yields with profitability from loans.
S&P Global's Zain Tariq noted that while margins are under pressure, they are not collapsing, and US bank earnings are expected to continue growing, albeit at a narrowing pace due to increased competition from nonbank lenders and higher funding costs for loans