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Key Takeaways
- The Federal Reserve held its benchmark federal funds rate steady today, as widely expected.
- CD rates closely follow the federal funds rate, having skyrocketed alongside the Fed’s inflation-fighting rate increases of the last two years.
- Today’s Fed language doesn’t mention potential future rate increases—all but confirming the Fed’s hikes have concluded.
- But since inflation is still too high, the Fed said rate cuts won’t be coming soon.
- CD rates are now plateauing below a historic autumn peak. But once the Fed begins cutting rates, that will push CD returns lower.
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What We Heard Today From the Fed
As was widely expected, the Federal Reserve’s rate-setting committee announced this afternoon that it is maintaining the federal funds rate at its current level. It’s the fourth meeting in a row in which the central bank has held its benchmark rate steady, after last raising it in July.
To fight inflation that had reached a 40-year high, the Federal Reserve implemented 11 rate increases—some of them massive—across 14 meetings between spring 2022 and summer 2023. Its rate-hike campaign raised the federal funds rate by a cumulative 5.25%, taking it to its highest level since 2001.
In statements and comments following previous meetings, the Fed kept the possibility of an additional rate hike on the table, indicating it could still increase rates if inflation did not fall far enough. Today’s statement, however, omits the language about possible future increases, essentially confirming that the Fed’s rate-hike campaign has concluded.
This signals a shift into a new phase—one focused on deciding when to start bringing rates down. But Fed Chair Jerome Powell stated today that, though the economy has seen promising progress, inflation is still too high, and the committee therefore won’t discuss implementing a rate cut until it feels assured inflation’s downward trajectory is both sufficient and sustainable.
“Inflation has eased from its highs without a significant increase in unemployment. That is very good news,” said Powell. “But inflation is still too high, ongoing progress in bringing it down is not assured, and the path forward is uncertain.”
The Fed’s next rate announcement will be made Mar. 20. During his press conference this afternoon, Powell indicated he doesn’t believe a rate cut will come as soon as the first quarter, saying, “I don’t think it’s likely the committee will reach a level of confidence by the time of the March meeting.”
As he commonly makes clear, Powell stated that the Fed’s rate-setting committee will make each rate decision “meeting by meeting,” adding that “the committee intends to move carefully as we consider when to begin to dial back the restrictive stance that we have in place.”
After the March meeting, the Fed’s next rate announcement will come on May 1.
How the Fed Affects the Best CD Rates
Fed decisions about the federal funds rate have a direct impact on the interest that banks and credit unions are willing to pay for savings, money market, and certificate of deposit (CD) accounts. When banks and credit unions expect the Fed to raise the fed funds rate, many raise their consumer deposit rates as well. The opposite is true when they expect the Fed to lower rates.
In a rate-hold situation like we have now—and where the next development will be a rate cut—banks and credit unions have been slightly lowering rates. That’s because CDs offer you not just a rate today, but a rate plus a future promise: For the full number of months or years in the term you choose, the CD’s rate will be locked and guaranteed.
When there was a chance of the federal funds rate still going up, banks and credit unions were willing to promise higher future rates. But with that possibility now off the table, institutions don’t want to overpay with CD rates they’ll regret down the road.
Advice for CD Shoppers
Though not quite as high as a few months ago, current CD rates are still remarkable. You can lock in a rate in the mid- to upper-5% range in shorter terms, and the mid- to upper-4% range in longer CD terms. And since these rates won’t change until the CD matures, they are expected to significantly out-pay savings account interest rates once the Fed begins lowering the fed funds rate.
So, while CD rates may not be quite at the peaks they reached in the fall, they still offer an excellent rate guarantee for months or years into the future.
How We Find the Best Savings and CD Rates
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.