The Federal Reserve’s announcement on interest rates was no surprise today—but it provided a set of clues we only receive from the Fed once per quarter, suggesting where savings and CD rates could be headed for the rest of this year and into 2024. For CD shoppers trying to decide when to lock in a great rate and what certificate duration to choose, any possible signals from the Fed are worth pondering. So let’s see what we learned.
What the Fed’s 2023 Expectations Mean for CD Rates
What the Federal Reserve does with the federal funds rate has a direct impact on the interest banks and credit unions are willing to pay for savings, money market, and certificate of deposit (CD) accounts. So when the fed funds rate goes up, bank rates go up as well. The same is true when the Fed lowers its benchmark rate.
Today’s move by the Federal Reserve was actually a non-move. As was widely expected, the central bank held the fed funds rate steady, after most recently raising it on July 26. Across the last 13 meetings—beginning in March 2022—the Fed has raised its benchmark rate 11 times. That’s resulted in a cumulative increase of 5.25% so far, and has taken the Fed rate to its highest level since 2001.
But once every three months, the Fed’s rate-setting committee releases some extra “behind the curtain” information, including the eagerly anticipated “dot plot”. This chart represents each committee member with a dot (with no names attached) and uses those dots to show where each member believes the fed funds rate will be at the end of 2023, 2024, and so on.
In the dot plot released today, we learned that almost two-thirds of the Fed members (12 out of 19) believe the benchmark rate will need to be raised one more time in 2023, for another increase of 0.25%. All of the remaining seven members instead believe the rate will hold where it is through the rest of the year.
If the majority proves right, it would mean another rate increase on either Nov. 1 or Dec. 13. And this in turn could nudge CD rates a bit higher. It’s also true that if an increase becomes widely expected, some banks and credit unions could raise rates ahead of the actual Fed announcement.
But beware: These are just predictions, based on what the Fed members know right now. The economic landscape can change quickly, which means the Fed can change course from previous projections.
What Does the Fed Predict for 2024?
What we can gather from the dot plot about the direction of rates in 2024 is a little fuzzier, given the more distant time horizon. The biggest point of agreement among Fed members is that there will be rate cuts in 2024. Roughly 70% of the committee members (13 out of 19) believe the fed funds rate will be lowered by the end of 2024. However, the amount of decline they project varies between 0.25% and 1.00%. The median expectation is a drop of 0.50% in 2024.
The other reason this projection is a little less concrete than 2023’s forecast is that the dot plot doesn’t convey any timing of rate changes other than the calendar year. So while it seems likely that one or more rate decreases will be implemented in 2024, the dot plot provides no information on which of next year’s eight meetings we should expect the cuts.
What this means for CD shoppers is that you’ll perhaps have a fair bit of time during which rates will stabilize and you can choose when to make your CD-buying move. But as soon as it appears likely a Fed rate decrease is on the horizon, rates will begin to soften, and mostly likely in advance of an actual Fed decrease.
Advice for CD Shoppers
With rates at record highs already, CD shoppers are sitting in a good spot. While it’s true that CD rates could edge a little higher, they are not expected to rise by much, tacking on perhaps another quarter point when they have already risen more than five percentage points. That means what you stand to gain by trying to time the perfect CD peak is minimal—and may not be worth the gamble of potentially losing out if rates decline before you expect it.
The smartest advice is to decide carefully what your ideal duration is, and then shop around to choose the best CD in that term. Right now, the top offers in our daily ranking of the best CD rates pay as much as 5.80% APY, with 20 CDs paying at least 5.65% APY. So you have an abundance of options at your disposal.
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.