What the Fed Did and Why It Matters for CDs
The hold itself was the headline outcome, but the vote underneath was unusual: an 8-4 split that produced the most dissents at a single FOMC meeting since 1992. Governor Stephen Miran dissented in favor of a 25-basis-point cut, while three regional presidents — Cleveland’s Beth Hammack, Minneapolis’s Neel Kashkari, and Dallas’s Lorie Logan — pushed back from the opposite direction, opposing the inclusion of “easing bias” language in the statement that signaled future cuts may be coming. The Fed’s official statement also hardened on inflation, calling it “elevated” rather than the prior “remains somewhat elevated,” and flagged that the conflict with Iran is contributing to “a high level of uncertainty about the economic outlook.” For savers, the practical takeaway from the divided vote is that the dot plot’s projected single rate cut in 2026 is far from a sure thing — there is real internal pressure to hold rates steady longer.
How the Federal Funds Rate Directly Influences CD Rates
Unlike mortgage rates, which track the 10-year Treasury yield and have only an indirect relationship to Fed policy, CD rates and other deposit account rates respond closely and quickly to changes in the federal funds rate. Understanding why is the key to understanding where CD rates are headed.
The federal funds rate is the rate at which banks lend reserves to each other overnight. When the Fed raises this rate, banks can earn more on their reserves at the Fed itself (the Interest on Reserve Balances rate is set in lockstep with the federal funds target), and they have to compete harder for new deposits. To attract those deposits, they raise CD rates and high-yield savings rates. When the Fed cuts, the reverse happens: banks can pay less for deposits and still maintain their margins, so deposit rates drop within days or weeks.
The relationship is not one-to-one — banks have other funding sources, regional competition matters, and online banks are typically more aggressive on rates than traditional brick-and-mortar banks. But the directional relationship is reliable. Look at what happened during the Fed’s 175 basis points of cuts between September 2024 and December 2025: top CD rates fell from above 5% on 12-month terms to the high 3% to low 4% range we see today. The Fed cut, deposit rates followed.
What makes CDs different from variable-rate accounts in this environment is the timing. A high-yield savings account or money market account moves with the Fed in real time — the bank can change the rate any day. A CD locks in the rate for the full term. So the question for savers is not just “where are rates going” but also “when do I lock in?”
What the Dot Plot Implies for CD Rates Through 2026
The Fed’s March 2026 Summary of Economic Projections (the dot plot) showed the median FOMC member projecting one 25-basis-point cut in 2026, ending the year at 3.4%, then one more cut in 2027 to end at 3.125%. That path, if it plays out, would translate roughly as follows for CD rates:
- If one cut hits in 2026: Top 12-month CD rates likely drift from today’s ~4.00–4.20% range to roughly 3.75–4.00% by year-end. Top short-term rates (3–9 months) drop similarly.
- If two cuts hit (one in 2026, one in early 2027): Top 12-month rates settle in the 3.50–3.75% range by mid-2027.
- If zero cuts in 2026 (which the futures market is now pricing as the most likely outcome): Top CD rates stay roughly where they are today through year-end.
The four-dissent split at this meeting matters specifically because it tells you the committee itself does not have high conviction on the path. Three policymakers want to remove the easing bias entirely — meaning they think the next move could just as easily be no cut at all, or a longer pause. Markets are listening: the CME FedWatch Tool now puts the highest probability on zero cuts in 2026 at roughly 40%, with one cut at 28% and two cuts at 16%.
The Case for Locking in CD Rates Now
Whichever path actually unfolds, the case for locking in today’s CD rates is stronger than it has been at any point this year, for three reasons.
Asymmetric risk. If rates fall, you keep today’s higher rate locked in for the term. If rates stay flat (the base case from FedWatch), you have not lost anything — you simply earned a fixed return on cash that would otherwise be sitting in a variable-rate account. The only scenario where locking in costs you is if rates unexpectedly rise materially, and nothing in the current data supports that scenario unless inflation breaks meaningfully higher.
The flat yield curve. Right now, top 12-month CD rates are roughly the same as top 24-month and 36-month CD rates — sometimes within 10–15 basis points. That is unusual and means you are not giving up much yield by choosing a shorter term. For savers who want to keep their options open, a short-term CD locks in today’s rate without a long commitment. The current 12-month CD rates compare directly with longer terms, and the gap is small enough that the choice can be made on liquidity preference rather than yield.
Time risk on variable accounts. The 3.5–4.5% APY currently available on top high-yield savings accounts is variable and can drop the day after the Fed cuts. A CD at the same rate freezes that yield for the full term. If you have cash that you genuinely will not need for 12 months, the variable account is exposing you to downside risk with no compensating upside.
A Practical CD Strategy: Ladder Across the Curve
The most defensive approach for savers who want to lock in rates without making a single bet on one term is a CD ladder — splitting the money across multiple terms that mature at staggered intervals. With the curve as flat as it currently is, the math works particularly well.
A simple two-rung ladder at current rates: half the money in a 12-month CD at roughly 4.00%, half in a 24-month CD at roughly 4.00%. After 12 months, the first CD matures and you can either reinvest at whatever the prevailing 24-month rate is at that time, or move the funds to a high-yield savings account if rates have moved meaningfully. This gives you regular access to a portion of your funds while locking in the rest at today’s elevated rates.
For savers with larger balances, a five-rung ladder spanning 1, 2, 3, 4, and 5 years is the classic structure. Each year, the maturing CD reinvests at the prevailing 5-year rate, eventually creating a ladder where one CD matures every year. This works even better when the curve normalizes — longer-term rates start paying meaningfully more than shorter-term rates again — but the structure provides liquidity and rate diversification regardless of the curve’s shape.
For the strategic considerations behind laddering versus other CD approaches, this guide on investing in certificate of deposit accounts walks through the trade-offs in more detail.
CDs vs. High-Yield Savings: The Decision Framework
Top high-yield savings accounts are currently paying in the 3.5–4.5% APY range, which means for shorter terms, an HYSA’s variable rate is roughly comparable to a fixed CD rate. The decision comes down to two questions.
The first is whether you can confidently say you will not need the money for the term length. If there is a real chance you will need it in eight months, a 12-month CD is the wrong choice — the early withdrawal penalty will erase much of the rate advantage. Match the term to a horizon you are confident about.
The second is your view on where rates head from here. If you believe the Fed will cut at all in 2026, a CD locks in today’s rate before that happens. If you believe FedWatch is right and the Fed holds steady through the rest of the year, both options work but the CD’s fixed rate gives you certainty that the HYSA does not.
For most savers, a sensible split is to keep emergency funds and short-term spending in a high-yield savings account, and use CDs for money with a defined longer-term horizon. The exact ratio depends on your situation, but running the numbers using a CD vs. HYSA calculator with the actual rates you are looking at is more useful than relying on rules of thumb.
What to Watch From Here
Three data points will matter most for CD rates over the rest of 2026.
The first is the June 16–17 FOMC meeting. This will be Kevin Warsh’s first meeting as chair if his confirmation proceeds on schedule (the Senate Banking Committee approved his nomination on April 29, with a full Senate vote expected after the May recess). It will also include an updated dot plot. With the committee already showing four-way dissent, the June projections will reveal whether the consensus has tightened or further fractured. Tightening toward “no cuts in 2026” pushes CD rates to hold steady or drift slightly higher. Tightening toward “two cuts in 2026” pulls CD rates lower.
The second is monthly CPI data. The April 2026 CPI report (released mid-May) will show whether the energy spike from the Iran conflict is easing or persisting. Sustained 3%+ inflation prints argue against any cuts and likely keep CD rates near current levels. A sharp deceleration would unlock the cuts the dot plot projects and pull CD rates lower.
The third is geopolitical developments in the Middle East. A meaningful de-escalation would pull oil prices and inflation expectations lower, opening the door for cuts. Further escalation does the opposite. This is the wild card — the one variable that could push the Fed in either direction faster than the data alone would.
For savers, the practical implication is that today’s CD rates are unlikely to look meaningfully different a month from now, but they could look different by midsummer depending on how these three variables develop. Locking in now protects against the downside scenario without giving up much if rates hold flat. Waiting only pays off in the specific scenario where rates rise — which is the least likely outcome based on current data.
Frequently Asked Questions
Will CD rates go down if the Fed cuts rates later in 2026?
Yes. CD rates respond closely and quickly to federal funds rate changes — historically within days to a few weeks of a Fed move. A 25-basis-point cut typically pulls top CD rates lower by 15–25 basis points. If the Fed cuts once in 2026 as the dot plot’s median projects, top 12-month CD rates likely drift from today’s ~4.00–4.20% range toward 3.75–4.00% by year-end. If the Fed holds steady (which the futures market currently views as the most likely outcome), CD rates stay near current levels.
Why do CD rates follow the Fed but mortgage rates do not?
CD rates are tied closely to the federal funds rate because banks set deposit rates with reference to what they can earn on reserves at the Fed and what they need to pay to attract deposits relative to their competitors. The federal funds rate is the anchor for both. Mortgage rates, by contrast, track the 10-year Treasury yield, which is set by the bond market and reflects expectations about inflation and growth over a much longer horizon than the next FOMC meeting. As a result, mortgage rates and CD rates can move on different timelines and sometimes in different directions in the short term.
Should I lock in a CD now or wait for higher rates?
Based on current Fed projections and futures market pricing, the most likely scenarios for the rest of 2026 are either rates holding steady or one 25-basis-point cut. Neither scenario produces meaningfully higher CD rates than what is available today. The only scenario where waiting pays off is if the Fed unexpectedly hikes rates, which is not currently priced in by markets and would require a significant inflation shock. Locking in today’s rates protects against the more likely downside scenario at minimal cost.
What is a CD ladder and is it a good strategy now?
A CD ladder splits your money across CDs with staggered maturity dates — for example, opening five separate CDs maturing in 1, 2, 3, 4, and 5 years. Each year, the maturing CD reinvests at the prevailing 5-year rate, eventually creating a ladder where one CD matures every year. With the current yield curve relatively flat — meaning longer-term CDs do not pay meaningfully more than shorter-term ones — laddering provides liquidity and rate diversification at minimal yield cost. It is a particularly defensive strategy when the rate path is uncertain, as it is now.
When does the next Fed meeting happen?
The next FOMC meeting is scheduled for June 16–17, 2026. This will likely be Kevin Warsh’s first meeting as Fed Chair, replacing Jerome Powell whose chairmanship ends May 15. The June meeting will include an updated Summary of Economic Projections (the dot plot), giving the first read on how the new chair and the committee see the rate path forward. Until then, the committee’s April statement and the divided vote are the primary signals, both of which point to a Fed in wait-and-see mode.
