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Savings Accounts and CDs Both Pay Over 5%—For Now

One of the silver linings of post-pandemic inflation has been its upward pressure on bank deposit rates. To tame inflation, the Federal Reserve launched an aggressive rate-hike campaign from March 2022 to July 2023, which in turn catapulted the rates banks and credit unions have been willing to pay on savings, money market, and certificate of deposit (CD) accounts.

As a result, CD yields skyrocketed to a peak last fall, with a handful of certificates paying returns of 6% or higher in October and November. And by December, the top high-yield savings account rate had surged to 5.50% APY.

That top high-yield savings account rate has held steady since then, while CD yields have edged down slightly from their record rates—given their rate-lock nature and the resulting need to hedge against future Fed rate cuts.

But don't let the slight rate decline turn you off on CDs, as today's rates are still remarkably high. In fact, CDs continue to offer returns well above what savers have been able to earn over most of the past 15 or more years.

Your CD Rate Will Be Locked In—While Your Savings Account Rate Will Fall

While it's true you could continue earning as much as 5.50% from a high-yield savings account for some time going forward, those days are likely numbered. That's because the Federal Reserve is expected to begin lowering the federal funds rate sometime this year.

Once it signals that a decrease is coming, banks and credit unions will start reducing the annual percentage yields (APYs) they pay on savings and CD accounts. And each subsequent rate cut from the central bank will push deposit rates further down.

But if you open a CD before that happens, your CD yield will be guaranteed for the full maturity term of the certificate. That means you could lock in as much as 5.55% for six months, 5.40% for a year, or even 5.00% until 2027. No matter what the Fed does with interest rates, you'll be able to count on the CD rate you locked in.

In contrast, money you hold in a high-yield savings account will be at the mercy of interest rate changes. Banks and credit unions can reduce the rates they pay on these accounts anytime they like, and they don't even need to provide advance warning.

What We'll Learn This Week From the Fed

What's uncertain right now is the timing of when the Federal Reserve will decide to make its first rate cut. Though inflation has come down considerably, it is still above the Fed's target level of 2%. And until the Fed committee members feel inflation has come down sufficiently—and reliably—they are hesitant to begin cutting rates. The central bankers will be meeting this week, concluding with a rate announcement on Wednesday afternoon. It is overwhelmingly expected they'll maintain the federal funds rate at its current level, which will be its fifth consecutive rate hold.

What will be more newsworthy is what we learn from the Fed's "dot plot." Released once per quarter, Wednesday's coming dot plot will show where each Fed committee member predicts the benchmark rate will be in the coming few years. This serves as a rough forecast of how many rate cuts the committee expects to make by the end of this year, next year, and in 2026.

In December, the Fed's dot plot showed a median expectation of three rate cuts totaling 0.75% by the end of 2024. But since then, recent data has shown inflation is proving more stubborn than the Fed hoped to see. As a result, this week's dot plot could show the committee easing back on the number of 2024 rate cuts it predicts.

Banks and credit unions will be watching this information from the Fed carefully, and what they see will influence how much longer they keep savings and CD rates where they are vs. starting to ease off the gas in anticipation of Fed rate decreases.

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.