The year 2023 has already delivered remarkable buying opportunities for CD shoppers. That's thanks to the Federal Reserve's aggressive inflation fight, which has pushed CD rates to their highest levels since at least 2007. You can now earn an eye-popping 5.90% APY with the best nationwide CD, while dozens of other certificates pay 5.50% or more.
But where does this road lead? Will the best CD rates climb even higher this year, or are they nearing their 2023 peak?
CD Rates Are Driven Higher by One Thing
Unlike mortgage rates, which rise or fall based on a complicated mix of factors, the interest rates banks and credit unions pay for consumer deposits are influenced almost entirely by the federal funds rate. This is the Federal Reserve's powerful lever for fighting inflation, and anytime it's raised, savings, money market, and certificate of deposit rates rise as well.
Due to high post-pandemic inflation, the Fed hiked its benchmark rate aggressively over a 16-month period starting in March 2022. The cumulative increase has so far totaled 5.25%, taking the federal funds rate past its 2006-2007 peak and matching its Jan. 31, 2001 level.
In good news for savers, CD rates have been riding the Fed wave, with today's top rates above 5.00% APY in every CD term up to three years. Even better, our daily ranking of the best nationwide CDs includes nearly 30 options that pay at least 5.50% APY.
Take 2-year CDs, for example. Before the Fed began its rate-hike campaign, the top nationwide rate in that term was about 1.00% APY. Today you can earn almost 6.00% APY. You can see this kind of ascent in almost every CD term in the graph below.
How High Will CD Rates Go This Year?
The short answer is that no one knows. But here's what we do know that could impact CD rates for the rest of 2023.
- The Fed's rate-setting committee will next meet on September 19-20. So the federal funds rate will stay where it is for at least another five weeks.
- Between now and then, it's possible some banks and credit unions could nudge CD rates a bit higher. But it's also possible the top rates will hold largely steady, since many institutions have already raised rates over the last several weeks.
- Whether CD rates move noticeably higher over the rest of this year will depend on whether the Fed decides to implement another increase. Right now, that's a very open question with no known answer.
- Federal Reserve Chairman Jerome Powell said in his press conference following the Fed's July 26 meeting that both a September hike and a September hold were possibilities.
- Four other Fed members have spoken publicly since the meeting, and three have signaled that an additional hike is is possible, depending on the data that comes in. The fourth stated that only something very surprising in the upcoming data would sway him to expect another rate hike. (There are 18 Fed committee members in total.)
- The Fed's 2023 rate-setting calendar includes two post-September meetings: One concluding November 1 and the last one concluding December 13.
- Financial markets are mostly betting against another hike, assigning only 10%-12% odds that the Fed will raise rates at the September meeting, and 35%-40% odds of a November or December increase.
Only time will tell what moves the Fed actually makes, as the rate-setting committee makes each decision on its own and based on the freshest economic indicators and financial news. But we do know that if the central bank implements another rate increase, CD rates will be pushed slightly higher as well. On the flip side, once it becomes clear that the Fed has concluded its rate-hike campaign, that will be a sign that CD rates are probably at their peak.
When Will CD Rates Go Down?
At some point, the Fed will decide that inflation is reliably in control and will begin easing off the gas. First, it's likely to hold the federal funds rate in place for some period. Then, when economic indicators signal the timing is right, it'll eventually begin to reduce its benchmark rate.
But it's not expected that day will come this year. Fed Chair Powell commented in late June that he didn’t see inflation dropping to the Fed’s target rate of 2% until 2024 or even 2025. That suggests the committee would not lower rates until at least next year. Similarly, Fed member Neel Kashkari said yesterday that a rate decrease was "a long way off", indicating that the committee could lower rates in 2024 if it sees data to support that decision.
For CD shoppers, this means high CD rates are likely to stick around beyond this calendar year. But whether they stay at a record peak—or ease to a slightly lower plateau while the Fed rate is stable— will be hard to predict.
How to Score a Top CD Rate (We Make It Easy)
At any rate, it's a great time to lock in one of today's record rates because you know you'll be guaranteed that rate for the full CD term. Not only that, but any further moves by the Fed are likely to be very incremental, probably raising the fed funds rate only another quarter percentage point. As we've talked about, it's also possible the Fed won't raise rates anymore at all, meaning CDs are already at peak rates.
Fortunately, we make it easy to always find the top nationwide rates, whatever term you're looking for. Our ranking of the best CD rates includes only federally insured banks and credit unions, and is updated daily.
Looking to keep some of your savings in an account with easier access? We also provide a daily ranking of the best high-yield savings accounts and the best money market accounts.
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.
Correction—Aug. 16, 2023: A previous version of this article misstated the number of CDs that pay at least 5.50%.
As an enthusiast with a deep understanding of financial markets, particularly in the realm of certificates of deposit (CDs), let me assure you that my expertise stems from a comprehensive analysis of economic indicators and financial trends up to my last knowledge update in January 2022. My proficiency is rooted in monitoring the intricacies of central banking policies, such as those implemented by the Federal Reserve.
Now, delving into the article about CD rates in 2023, it is evident that the Federal Reserve's aggressive stance against inflation has significantly impacted CD rates, driving them to their highest levels since at least 2007. The key driver behind the surge in CD rates is the federal funds rate, a tool wielded by the Federal Reserve to combat inflation.
Unlike mortgage rates, which are influenced by a complex interplay of factors, CD rates are closely tied to the federal funds rate. The Federal Reserve, responding to post-pandemic inflation, raised its benchmark rate aggressively over a 16-month period starting in March 2022, culminating in a cumulative increase of 5.25%. This brought the federal funds rate beyond its 2006-2007 peak, matching its Jan. 31, 2001 level.
The article highlights the positive impact of the Fed's actions on CD rates, showcasing rates above 5.00% APY in various CD terms up to three years. The graph presented in the article illustrates the substantial ascent in CD rates across different terms.
Moving forward, the uncertainty about how high CD rates will go in 2023 hinges on the Federal Reserve's future decisions. The article notes that the Fed's rate-setting committee is scheduled to meet in September 19-20, and whether CD rates will increase further depends on potential additional rate hikes.
Federal Reserve Chairman Jerome Powell and other committee members have provided insights, indicating that the possibility of rate hikes beyond September is contingent on incoming economic data. Financial markets, however, are somewhat skeptical, with low odds assigned to a September rate increase but higher probabilities for November or December.
The article also addresses the eventual downturn in CD rates, which will occur when the Federal Reserve deems inflation under control and decides to ease off the gas. The timeline for this shift is uncertain, with indications that a rate decrease may not happen until 2024 or 2025, according to statements from Fed Chair Powell and other members.
In terms of actionable advice, the article suggests that it's an opportune time to lock in today's record CD rates. The Fed's potential future moves are expected to be incremental, possibly raising the fed funds rate by only a quarter percentage point. The article concludes by emphasizing its role in making it easy for readers to find the top nationwide CD rates through daily rankings.
Lastly, the article provides transparency regarding its rate collection methodology, tracking data from over 200 banks and credit unions, ensuring federal insurance, and setting criteria for minimum initial deposits. It also corrects a previous misstatement about the number of CDs paying at least 5.50%.
In summary, the article provides a comprehensive overview of the current CD rate landscape, factors influencing their movements, and insights into the potential future trajectory based on the actions of the Federal Reserve.
