Current CD Rates of July 2023
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Summary:
Top banks and credit unions are revolutionizing the financial landscape by offering incredibly attractive CD rates. This is a golden opportunity for savvy investors looking to solidify their portfolios. From short-term 3-month to extensive 10-year CDs, these high-yielding options cater to every financial goal, boosting growth while ensuring safety.
Dive into the world of Certificates of Deposit (CDs) where the rates are soaring to heights not seen in over a decade and a half. The Federal Reserve’s strategic combat against inflation is the magic wand behind this growth. Their series of ten federal funds rate hikes since March 2022 has shot CD rates to the stars. However, keep a keen eye on the Federal Reserve’s decisions as a change in rate hike strategy could signal the peak of CD rates.
Keep reading to learn more about this month’s best paying CD accounts, how they compare to the national average, and where you can open a CD account today.
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CD rates by term length
| Term length | Last month’s top national rate (APY) | This month’s top national rate (APY) | Change (percentage points) |
|---|---|---|---|
| 3 months | 4.90% | 5.20% | +0.70 pp |
| 6 months | 5.02% | 5.65% | +0.63 pp |
| 1 year | 5.25% | 5.75% | +0.50 pp |
| 1.5 years | 5.25% | 5.70% | +0.45 pp |
| 2 years | 5.15% | 5.30% | +0.45 pp |
| 3 years | 4.85% | 5.13% | +0.28 pp |
| 4 years | 4.73% | 4.85% | +0.22 pp |
| 5 years | 4.68% | 4.77% | +0.09 pp |
| 10 years | 4.20% | 4.00% | -0.20 pp |
To take advantage of these rising CD rates, consider opening one of the CD accounts below.
Highest CD rates this month
Pro Tip
Keep in mind that the “top rates” mentioned are the highest rates we’ve in our research. These rates differ greatly from the national average, which includes all financial institutions offering a CD with a certain term, even those offering low interest rates. As a result, you can often find significantly better rates by comparing offers from multiple institutions.
Compare the national average with the highest available
Different kinds of CDs
Deciding on a CD term is just one choice you’ll make if you open a CD account. In addition to when the CD matures and the current APY, you’ll also want to compare the different kinds of CDs available to you.
| CD Type | Characteristics | Example |
|---|---|---|
| Traditional | Traditional CDs are the most common type. An investor deposits funds at the beginning, then the CD pays a fixed interest rate over a defined period, after which they can receive the principal or roll it into another CD. | You deposit $1,000 into a six-month CD paying 3% annually. Six months later, you receive your $1,000 plus interest earned. |
| Bump-up | A "bump-up" is a traditional CD that allows you to "bump up" to a higher interest rate if the institution holding the CD raises the rate of a similar term CD. Bumping up to a new rate is typically only allowed once per term. The rates on bump-up CDs are less than that of a similar-length traditional CD. | You buy a three-year $1,000 bump-up CD with an annual rate of 2%. Six months later, the bank raises the three-year rate to 2.75%. You can ask the bank to increase your rate for the next 30 months. |
| Step-up | Like a bump-up, the CD moves to a higher rate over time. However, step-up CDs automatically raise the rate by a predetermined amount at specified times during the term. | You purchase a three-year CD at 1.75%, where the rate goes up by 0.25% every year. |
| Liquid (no-penalty) | A liquid, or no-penalty CD, does not charge early withdrawal fees, allowing you to withdraw your money if needed. These CDs typically earn a lower rate than a traditional CD of the same term. | Compared to the traditional CD example above, a similar $1,000 two-year no-penalty CD will have a rate of less than 3%. |
| Zero-coupon | Similar to a zero-coupon bond, a zero-coupon CD does not pay periodic interest payments. Instead, an investor purchases the CD at a discount to its par value, and upon the end of the term, you will receive the par value. | You purchase a two-year zero-coupon CD with a par value of $1,000, for $985. Upon maturity in two years, you will receive $1,000, earning $15 in interest. |
| Callable | Similar to a traditional CD, this CD pays a fixed interest rate for a set period. However, the financial institution has an option to "call" or buy back the CD before the term ends. An institution would do this if the interest rates have fallen below the level they are paying this callable CD. | You buy a two-year CD paying 3% annually that is callable after one year. The prevailing interest rate drops during the first year so similar CDs pay 1.5%. The institution exercises its call provision, repurchasing your CD. You receive the original principal plus any interest earned. |
| Brokered | A brokered CD is sold through a brokerage firm. This means you don't have to open an account at multiple banks to shop for the best rates. Instead, you can have one account hold CDs of different types, maturities, and financial institutions. A brokerage firm can also buy or sell CDs on the secondary market. | You open a brokerage account with a firm and buy a CD offered through the brokerage platform. The CDs can take the form of any CD on this list. |
| High-yield | As the name implies, these are typically traditional CDs with a relatively high yield. | You purchase a two-year high-yield CD that pays 3.5%, whereas other CDs are paying 2.75%. |
| Jumbo | Jumbo CDs require a large upfront deposit, typically $100,000 or more. An institution could reward an investor for a large deposit with a higher rate, though that may not be the case. | You buy a $250,000, two-year jumbo CD paying 2.5%. By comparison, a traditional non-jumbo two-year CD pays 2.4% and requires only $1,000. |
| Add-on | Most CDs require you to deposit all of the CD funds upfront and don't allow further contributions. An add-on CD lets you add more money during the term, though there may be limits on the number of times you can "add on." | You purchase a two-year add-on CD paying 2% for $1,000. Then, every six months, you deposit an additional $500. At the end of the term, you receive the deposited funds plus any interest earned. |
| Foreign currency | A foreign currency CD allows you to use U.S. dollars to initially purchase a CD. Those funds are then converted to a foreign currency (pound, euro, etc.) and then back to U.S. dollars at maturity. This CD introduces additional risks to your money, such as the risk of a dropping foreign exchange rate. | You buy a two-year euro-denominated CD paying 3% for $10,000. Your money is converted into euros at the current exchange rate and earns interest. Upon expiration, the principal and any interest are converted back to the U.S. dollar at the exchange rate at that time. |
How does the Federal Reserve change CD rates?
Every six to eight weeks, the Federal Reserve’s rate-setting committee holds a two-day meeting to determine the future of the federal funds rate, which can increase, decrease, or remain unchanged.
The federal funds rate does not directly impact the interest rates offered by financial institutions for CD deposits. Rather, it is the rate at which institutions lend or borrow their excess reserves to each other overnight. However, a higher federal funds rate creates an incentive for institutions to seek deposits from consumers as a cheaper alternative, leading them to increase savings, money market, and CD rates.
In response to the pandemic, the Fed announced a 0% emergency rate cut in 2020, and the rate remained at that level for two years. In March 2022, the Fed began increasing the rate by 0.25%, with a second increase of 0.50% in May. This was followed by four larger hikes of 0.75% in June, July, September, and November of 2022. In 2023, the trend continued with hikes in February, March, and May.
National average CD rates
How are CD rates expected to change?
Will we continue to see a climb in CD rates this year? Nobody knows for sure, but current signs indicate that they probably will increase a little before they start to drop again.
During their recent meeting, the Fed’s rate-setting committee chose to maintain the current rates, breaking their streak of 10 consecutive rate increases. Despite this pause, Fed Chairman Jerome Powell hinted at future hikes in his post-meeting remarks and congressional testimony.
The committee’s meeting report reveals a significant majority favoring at least two more rate hikes this year. If actualized, we could see a boost in the federal funds rate by 0.25% to 0.50%. This would take us back to the Fed’s peak rates from 2006-2007, inevitably driving CD rates up.
Remember that nothing is written in stone when it comes to the Fed. The Fed’s decisions hinge on the most recent financial data and news. Unexpected shifts in inflation, employment stats, or big banking sector news could certainly tip the scales of the Fed’s next move.
Key Takeaways
- CD rates are at an all-time high, offering a lucrative investment opportunity for savvy investors looking for secure avenues for their funds.
- The Federal Reserve’s series of ten federal funds rate hikes since March 2022 has significantly increased CD rates, although any change in this strategy could indicate the peak of these rates.
- There’s a diverse range of CDs available for investment, offering different term lengths and rates to cater to varying financial goals.
- The federal funds rate indirectly influences CD rates. A higher federal funds rate encourages financial institutions to raise their deposit rates to attract consumer savings as a cheaper alternative.
- Future predictions indicate a potential increase in CD rates, influenced by the Fed’s plan to maintain current rates and the anticipation of more hikes this year. However, this is subject to change based on various economic factors.
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