2023 is proving to be a banner year to have savings in the bank. That’s because it’s now easy to earn an eye-popping 5.00% APY or better on your cash. In fact, we haven’t seen rates like this in almost 16 years.
This record rate surge was triggered by the Federal Reserve’s aggressive battle against post-pandemic inflation. Though the resulting climb in bank and credit union CD rates was especially rapid in 2022, returns have continued to edge higher this year, too, as the Fed is not yet done with its fight.
But where are we headed from here? June has already been good for rates, with improvement in the market-leading CD rate from 5.50% to 5.65% APY. But could rates rise higher still in July? Right now, the smart bet looks to be “Yes.”
How CD Rates Have Reached Record Highs
It’s been 15 months since the Federal Reserve first hiked the federal funds rate, with the aim of bringing down inflation that at one point had reached a 40-year high. From March 2022 through May 2023, the Fed raised its benchmark rate at every meeting, accumulating 5.00% in increases. It’s the fastest pace of Fed increases in 40 years.
Whenever the central bank raises the fed funds rates, banks and credit unions are willing to pay more for your cash deposits, and as a result, each Fed increase has driven CD rates upwards. Take 1-year CDs, for example. Before the first Fed hike in early 2022, the top rate on a nationwide 1-year certificate was 1.00% APY. As we wrap up June 2023, the leading 1-year rate has skyrocketed more than five-fold, to 5.52% APY.
The rate surge can be seen in every CD term, with today’s leaders in our daily ranking of the best nationwide CDs all paying three to six times more than what you could earn in early 2022. Across terms, June’s top rates remarkably range from 4.77% to 5.65% APY.
It’s estimated that certificate of deposit rates have not hit levels this high since at least 2007, since that’s the last time we had such an elevated fed funds rate. Between June 2006 and September 2007, the Fed’s benchmark rate was actually a quarter-point higher than today’s rate, but then was dropped dramatically as a result of the 2007-2008 financial crisis. In the 16 years since 2007, the fed funds rate was held to effectively zero for nine of those years, and never climbed to even half of today’s rate.
Will July See CD Rates Move Even Higher?
We caution regularly that trying to predict where rates will go is a fool’s errand, as the U.S. economy and financial landscape can change quickly. Still, the Federal Reserve does give signals about what it projects it will happen with the federal funds rate, if things in the economy perform as expected.
At its last meeting, ending June 14, the Fed opted to hold its benchmark rate steady for the first time in 11 meetings. But it indicated its intention wasn’t to end its rate-hike campaign, but rather to slow the pace of increases. In fact, the Fed’s post-meeting report shows that 16 of the 18 Fed members believe at least one more rate hike will be needed in 2023. And 12 currently expect that two or more hikes will be in order.
Taking this and other economic indicators into account, financial markets are currently placing a more than 85% chance on a quarter-point rate hike being announced at the Fed’s next meeting, which will conclude July 26.
If a July hike does come to pass, it would almost certainly nudge CD rates higher as well. In fact, if banks and credit unions that are hungry for deposits feel confident the Fed increase will occur, some of them won’t wait for the actual Fed announcement and will simply raise their rates to be more competitive over the coming weeks.
For cash you’re not willing to commit to a CD, high-yield savings and money market accounts also offer excellent returns right now, with several options in our daily rankings of the best savings accounts and best money market accounts paying 5.00% or better. Just be aware that these accounts’ rates are variable, meaning they can go down at any time, unlike the locked nature of a CD rate.
Advice for CD Shoppers
Of course, any additional Fed rate increase is not guaranteed, as the Fed makes each rate decision based on the latest economic data and financial news. And we still have almost four weeks to go until the Fed meets.
Also, even if there is another increase, it will almost certainly be for a minimal 0.25%. Compared to how high CD rates have already climbed over the last 15 months, rate improvement at this stage will likely be more modest.
That means it’s hard to go wrong with opening a top-paying CD right now. Even if rates edge up a bit over the coming months, you’d still be locking in one of today’s stellar rates. And you wouldn’t have to play the game of trying to time the perfect peak.
On the other hand, since it appears very likely we’ll see further rate improvements at the Fed’s July meetings–and possibly even a second increase later in the year–those with patience and a little bit of a mind to gamble may be able to score an even better CD rate in the coming weeks or months.
Rate Collection Methodology Disclosure
Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the CD’s minimum initial deposit must not exceed $25,000.
Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don’t meet other eligibility criteria (e.g., you don’t live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.