2023 turns out to be a record year for having savings in the bank. That’s because it’s now easy to earn an impressive APY of 5.00% or better on your money. In fact, we haven’t seen such rates in almost 16 years.
This record rate hike was triggered by the Federal Reserve’s aggressive battle against post-pandemic inflation. Although the resulting rise in bank and credit union CD rates was particularly rapid in 2022, yields have also continued to rise this year as the Fed is not yet done with its fight.
But where do we go from here? June has already been good for rates, with the market-leading CD rate improving from 5.50% to 5.65% APY. But could rates rise further in July? Right now, the smart bet seems to be “Yes”.
How CD prices hit record highs
It has been 15 months since the Federal Reserve first hiked the federal funds rate, in an effort to bring down inflation which at one point had hit a 40-year high. From March 2022 to May 2023, the Fed raised its benchmark rate at each meeting, accumulating 5.00% increases. That’s the fastest pace of Fed increases in 40 years.
Every time the central bank raises fed funds rates, banks and credit unions are willing to pay more for your cash deposits, and as a result, every Fed increase has pushed up CD rates. Take one-year-old CDs, for example. Prior to the Fed’s first hike in early 2022, the highest rate on a one-year national certificate was 1.00% APY. As we end June 2023, the main one-year rate has increased more than fivefold, to 5.52% APY.
Soaring rates can be seen with every CD term, with today’s leaders in our daily ranking of the best domestic all-pay CDs three to six times more than you could earn in early 2022. Across terms, the June high rates range remarkably from 4.77% to 5.65% APY.
It is estimated that certificate of deposit rates have not reached such high levels since at least 2007, since that is the last time we had such a high federal funds rate. Between June 2006 and September 2007, the Fed’s benchmark rate was actually a quarter point higher than the current rate, but then fell dramatically following the financial crisis of 2007-2008. In the 16 years since 2007, the federal funds rate has been at zero for nine of those years and has never reached even half the current rate.
Will July see CD rates rise even higher?
We regularly warn that trying to predict where rates will move is a mistake, as the US economy and financial landscape can change quickly. Yet the Federal Reserve is giving signals about what it projects this will happen with the fed funds rate, if things in the economy work out as expected.
At its last meeting, which ended on June 14, the Fed chose to keep its key rate stable for the first time in 11 meetings. But he indicated that his intention was not to end his rate hike campaign, but rather to slow the pace of increases. In fact, the Fed’s post-meeting report shows that 16 of 18 Fed members think at least one more rate hike will be needed in 2023. And 12 currently expect two or more rate hikes to be needed. .
Given this and other economic indicators, financial markets are currently placing more than an 85% chance on a quarter-point rate hike announced at the Fed’s next meeting, which ends on July 26.
If a July hike materializes, it would almost certainly push CD rates higher as well. In fact, if deposit-hungry banks and credit unions are convinced that the Fed hike will happen, some of them won’t wait for the actual Fed announcement and will simply raise their rates to be more competitive over the next few weeks.
For the money you’re not ready to commit to a CD, high-yield savings and money market accounts are also offering excellent returns right now, with several options in our daily ranking of the best accounts. savings and top money market accounts paying 5.00% or better. . Just be aware that the rates on these accounts are variable, meaning they can drop at any time, unlike the locked-in nature of a CD rate.
Tips for CD Buyers
Of course, any further rate hikes from the Fed are not guaranteed, as the Fed makes every rate decision based on the latest economic data and financial news. And we still have almost four weeks until the Fed meeting.
Also, even if there is another increase, it will almost certainly be for a minimum of 0.25%. Compared to the rise in CD rates over the past 15 months, the improvement in rates at this point is likely to be more modest.
That means it’s hard to go wrong opening a high-paying CD right now. Even if rates go up a bit over the next few months, you’ll still be locked into one of today’s best rates. And you wouldn’t have to play the game of trying to time the perfect peak.
On the other hand, since it seems very likely that we will see further rate improvements at Fed meetings in July – and perhaps even a second increase later in the year – those with patience and a little mind playing may be able to get an even better CD rate in the weeks or months to come.
Disclosure of rate collection methodology
Each business day, Investopedia tracks rate data from more than 200 banks and credit unions that offer CDs to customers nationwide and determines the daily ranking of the highest-paying certificates for each major term. To qualify for our listings, 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 do not hold a certain type of employment), we exclude credit unions with a donation requirement of $40 or more. To learn more about how we choose the best rates, read our full methodology.