Will CD rates go higher in July?

2023 is proving to be an excellent year to have savings in the bank. That’s because it’s now easy to earn a staggering APR of 5.00% or more on your cash. In fact, we haven’t seen rates like this in almost 16 years.

This record-breaking rate hike was prompted by the Federal Reserve’s aggressive fight against inflation in the wake of the pandemic. Although the resulting rise in bank and credit union CD rates was particularly rapid in 2022, yields have continued to rise this year as the Fed has not yet ended its fight.

But where do we go from here? June was already good for interest rates, with the market-leading CD rate improving to 5.65% APR from 5.50%. But could interest rates rise even further in July? For now, the smart bet seems to be yes.

How CD prices have reached record highs

It’s been 15 months since the Federal Reserve first raised interest rates in a bid to bring down inflation, which was once at a 40-year high. From March 2022 to May 2023, the Fed raised interest rates at each meeting, with increases totaling 5.00%. It’s the fastest pace of Fed hikes in 40 years.

Whenever the central bank raises interest rates, banks and credit unions are willing to pay more for their cash deposits, and as a result, every Fed hike has pushed CD rates higher. Take CDs with a one-year shelf life, for example. Before the Fed’s first rate hike in early 2022, the maximum interest rate on a nationwide 1-year certificate was 1.00% APY. At the close of June 2023, the benchmark 1-year interest rate has increased more than fivefold to 5.52% APR.

The price hike has been seen in every CD run, with today’s leaders in our daily ranking of the nation’s best CDs all paying three to six times more than what you could earn in early 2022. Across all maturities, peak interest rates in June are notably between 4.77% and 5.65% APR.

It is estimated that interest rates on certificates of deposit have not been this high since at least 2007, as that was the last time we had a fed funds rate this high. Between June 2006 and September 2007, the Fed’s interest rate was actually a quarter point higher than today’s interest rate, but was then cut sharply as a result of the 2007-2008 financial crisis. In the 16 years since 2007, the federal funds rate has been kept at virtually zero for nine years and has never risen to half of today’s rate.

Will CD prices continue to rise in July?

We regularly warn that trying to predict interest rate movements is foolish as the US economy and financial landscape can change rapidly. Still, the Federal Reserve is signaling what it will do projects This will happen with the Federal Funds Rate if the economy performs as expected.

At its last meeting, which ended on June 14, the Fed decided to keep interest rates stable for the first time in 11 meetings. However, she indicated that the intention is not to end the rate hike campaign but to slow the pace of rate hikes. 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 believe that two or more rate hikes will be in order.

Taking these and other economic indicators into account, financial markets currently believe there is over an 85% chance of a quarter-point rate hike at the next Fed meeting, which ends on July 26th.

Should there actually be a hike in July, it would almost certainly push up CD rates as well. If deposit-starved banks and credit unions are confident that the Fed’s rate hike will happen, some of them won’t wait for the Fed’s actual announcement and will simply raise rates to be more competitive in the coming weeks.

For cash you don’t want to tie up on a CD, high-yield savings and money market accounts also currently offer excellent returns. Several options in our daily rankings of Best Savings Accounts and Best Money Market Accounts pay 5.00% or more. Note, however, that the interest rates on these accounts are floating, which means they can go down at any time, unlike the blocked interest rate on a CD account.

Advice for CD buyers

Of course, another rate hike by the Fed is not guaranteed, as the Fed makes every rate decision based on the latest economic data and financial news. And we have almost four weeks until the Fed meeting.

And even if there is a further increase, it will almost certainly only be a minimal 0.25%. Compared to how much CD rates have already increased over the past 15 months, the rate improvement at this point is likely to be more modest.

This means that you can hardly go wrong when you open a top CD now. Even if interest rates rose slightly in the coming months, you would still be locking in one of today’s top rates. And you wouldn’t have to play the game to find the perfect climax.

On the other hand, since it’s highly likely that we’ll see more rate hikes at the July Fed meetings — and possibly even a second hike later in the year — those with patience and a little gamble might be able to do so achieve an even better CD rate in the coming weeks or months.

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.

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