If you haven’t looked at CD rates in a while, get ready to fall out of your seat. Even after the Fed paused its series of interest rate hikes in June, APYs on CDs are still above 5%, with some inching closer to the 6% line. It’s a good time to be a CD shopper, but will July be the month we see 6% CD rates?
What might change for CDs in July
The biggest change for CDs could happen on July 26, when the Fed concludes its upcoming FOMC meeting and announces its next decision. If the Fed decides to raise the federal funds rate again by another quarter percentage, we could see a slight uptick in CD rates. In fact, even though that decision will come toward the end of the month, banks and financial institutions may decide to raise CD rates beforehand to draw in depositors in anticipation of the Fed’s decision.
To be clear, the federal funds rate doesn’t decide CD rates, but the two typically move in tandem. That’s because banks — especially lesser-known financial institutions — often compete by offering higher CD rates to attract depositors. Currently, short-term CD rates are clustering around 5%, with some lower than this and others higher, depending on terms and the CD issuer. NASA Federal Credit Union, for instance, is offering a 5.65% APY on a 9-month CD, while Bread Financial is offering 5.25% for a 1-year.
Will the Fed hike the fund rate in July?
While anything can change between now and July 26, it’s looking like the Fed will resume its rate-hiking campaign soon.
To recap, it’s been almost 16 months since the Fed began hiking the federal funds rate at its fastest rising pace in 40 years. And though the economy looks quite different today than when inflation hit a 40-year high last June, the Fed still believes it has more fight ahead of it. Reportedly, 12 of the 18 Fed policymakers predict we’ll see at least two more quarter-point hikes in 2023, with four more supporting at least one. That leaves only two policymakers (or roughly 11%) forecasting that rates will stay the same.
To be fair, the 12-month inflation rate has been steadily falling and even dropped to 4% in May 2023. But because the Fed wants inflation to fall to 2% — and because the economy is still holding itself together — it might take more drastic action to get what it wants.
CD shoppers: here’s what to do next
If you’re patient, you can wait and see what the Fed decides on July 26.
However, regardless of the Fed’s decisions, today’s CD rates still look really good. In fact, even if the Fed decided on two more quarter-point hikes this year, it’s unlikely CD rates would grow at the same pace that they did over the last 16 months.
Ultimately, if you’re sure a CD is right for you, locking into one at today’s rates would still leave you with a rate higher than May inflation. While I would love to see CD rates hit 6% in July, trying to time CDs at their peak might be a fool’s errand and could result in forfeiting high interest. If anything, consider a short-term CD, like one lasting just three months. This would help you capture today’s rates, while also giving you the potential to snag a different rate later this year.
