Will Today’s Fed Rate Hike Push CD Rates Even Higher?

In a widely anticipated move, the Federal Reserve announced another interest rate hike today in its bid to tamp down inflation, taking the central bank's benchmark rate to its highest level in 22 years. This is great news for CD shoppers, as it means today's already record-high rates are likely to inch a bit higher.

What Did the Fed Do Today?

Since March 2022, the Federal Reserve has been fighting decades-high inflation by aggressively raising the federal funds rate. Last year, the Fed's increases were fast and furious, raising the benchmark rate eight times for a cumulative increase of 4.25% over nine months.

Today, the Fed announced its fourth rate hike of 2023, which takes the fed funds rate to a range of 5.25-5.50%, a level we've not seen since January 2001. Though 2023's increases have been more modest, including a rate pause last month, the 2022-2023 campaign has been the most rapid period of Fed increases in more than 40 years.

How Do Fed Decisions Affect CD Rates?

The federal funds rate that the Federal Reserve controls represents the cost banks pay to borrow funds from each other overnight. While this may seem like it has little to do with you as a consumer, it directly impacts the rates that banks and credit unions are willing to pay customers for their deposits. So when the fed funds rate rises, the rates that financial institutions are willing to pay on savings, money market, and certificate of deposit (CD) accounts also goes up.

You can easily see how this has played out for CD rates in the graph below, which shows the top CD rate in various terms before the Fed rate hikes began and where they stand today. Rates have dramatically surged by as much as seven times their early 2022 levels, with dozens of CDs across various terms now paying well over 5.00% APY.

As always, the way to score the best CD rates is to shop around, and you can always find the best options for any term in our daily ranking of the best CD rates. As you can see below, you stand to earn many times more with a top-paying CD than with the typical CD paying the national average.

CDs Are Already Paying Record Rates

What Comes Next for CD Rates?

Today's Fed rate announcement had been widely expected since last month, so with banks and credit unions confident there would be another Fed increase, many of them have been raising their CD rates over the past several weeks. In fact, the new industry-leading rate has been boosted twice in the past seven days, first to 5.70% APY last week and to 5.75% APY early this week.

Still, some institutions will undoubtedly bump up their CD rates in the coming weeks, or even months, as the Fed will not meet again on rates until September 20. That means the fed funds rate will remain where it is for at least the next eight weeks, and competitive jockeying for customer deposits will likely prompt some banks and credit unions to offer higher CD rates between now and the Fed's September meeting.

For funds you don't want to commit to a CD, the news is still good, as the Fed's latest hike will likely also translate into improvements among the best high-yield savings accounts and best money market accounts.

What happens to rates further down the road, however, is a guessing game right now, as it's much too soon to reliably predict whether the Fed will make any additional rate hikes in 2023, or if this July increase is the last one of its historic rate-hiking campaign.

Will the Fed Raise Rates Again?

The Fed's written announcement today did not indicate whether the committee expects to make additional rate increases this year. But it did reiterate its commitment to reducing inflation to the Fed's target level of 2%, leaving the door open to an additional increase if the committee finds it necessary.

In his post-announcement press conference, Federal Reserve Chairman Jerome Powell indicated that no decisions have been made about whether the Fed will make another increase this year, nor about the pace at which it would move if additional increases are deemed necessary. “I would say it is certainly possible that we would raise funds again at the September meeting if the data warranted. And I would also say it’s possible that we would choose to hold steady at that meeting. We’re going to be making careful assessments, as I said, meeting by meeting” Powell said.

When asked about the prospect of the Fed beginning to lower the federal funds rate, Powell indicated he does not foresee that happening anytime in 2023.

Rate Collection Methodology Disclosure

Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account'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.