|CD terms that offer interest rates above the 4% inflation rate
|5.11% to 5.65%
|5.25% to 5.50%
|5.00% to 5.45%
|4.71% to 5.25%
|4.5% to 5.13%
Since peaking at 9.1% last June, inflation has fallen about as steadily as borrowing costs and CD rates have risen. The inflation rate for this month won't be announced until mid-July, but if it falls further, the current best CD rates could provide an even stronger hedge against inflation a few months from now. A three-year CD with a 5.13% interest rate could far outpace price increases if the Fed manages to bring inflation down to its 2% target.
Keep in mind that the interest you earn on a CD is taxed as ordinary income. So if your tax rate is 25%, your net gain from a 5% CD is only 3.75%.
Even taking taxes into account, the current best CD sets are better able to fight inflation than some alternatives. The best high-yield savings accounts today offer interest rates of up to 5.12%, but interest rates on savings accounts are variable, so they're likely to fall once the Federal Reserve starts cutting rates.
Still, savings accounts offer the benefit of liquidity, and you can easily access your money without the prepayment penalty that most CDs incur.
How CD prices are determined
Banks and credit unions set interest rates on certificates of deposit based on a number of factors.
The Federal Funds Rate is the rate at which banks lend each other money overnight. It is set eight times a year by the Federal Reserve's policy-making body, the Federal Open Market Committee (FOMC). The Fed Funds rate is one of the factors that influence the highest CD rates.
The Fed bases its rate adjustment decisions on economic indicators such as inflation, unemployment and the potential for a recession. However, the Federal Funds Rate does not simply mimic the rate of inflation.
The inflation rate started to rise in early 2021, reaching as high as 7.9% in February 2022 before the Fed began raising rates the following month. The Fed then raised rates several more times in 2022 and three more times in the first half of 2023 as inflation steadily declined.
The Fed is expected to pause rate hikes at its meeting, which ends Wednesday, before ramping up again with a small hike at its July meeting, according to the CME FedWatch tool, the Fed Fund Futures Contracts used to calculate market expectations of monetary policy.
Credit needs and other situation-specific factors
For banks and credit unions, the availability of cash on deposit helps fund loans to consumers and businesses. This need for cash can also play a role in how much a bank is willing to offer in terms of CD rates. For example, a large bank that has large deposits may not need to offer competitive CD rates in order to lend money at a higher rate.
This is one of the reasons why the average CD rate is far lower than the federal funds rate. The national average rate for a 12-month CD (currently the highest-earning term) is only 1.59%, compared to the effective federal funds rate of 5.06%.
Another factor in a bank or credit union's determination of CD rates is that CDs are actually considered liabilities on those institutions' balance sheets. A bank may wish to keep its liabilities low. One way to achieve this is to keep CD rates low and effectively discourage CD deposits.
On the other hand, some institutions actively seek depositors by offering significantly higher interest rates. Data from Investopedia shows that many who offer the best deals only do so for a few months, either on their regular CDs or on limited-time promotional CDs. Other institutions consistently offer high-paying CDs and make our list of top rates.
Disclosure of Tariff Collection Methodology
Each business day, Investopedia tracks rate data from more than 200 banks and credit unions offering CDs to customers across the country, and provides daily rankings of the best paying certificates for each key time period. To qualify for our listings, the institution must be federally insured (FDIC for banks, NCUA for credit unions) and the minimum CD 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 in order to become a member if you don't meet other eligibility criteria (like not living in a specific area or working in a specific type of job). ), We exclude credit unions whose donation needs are $40 or more. For more information on how we select the best fares, see our full methodology.