CD rates forecast: How high will rates rise in 2024?

Savers have enjoyed high certificate of deposit (CD) rates over the past few years thanks to the Fed’s efforts to snuff out sky-high inflation. But with prices coming down, and the Fed expected to begin cutting rates sometime in 2024, the era of ever-higher CD yields may be coming to a close.

Annual percentage yields (APYs) and account details are accurate as of June 18, 2024.

Average CD rates now

The average annual percentage yield as of June 17, 2024 on a 1-year CD was 1.86%, according to the Federal Deposit Insurance Corporation (FDIC), while a 5-year CD was 1.43%. 

This represents a massive increase from recent levels. For instance, a 1-year CD yielded just 0.13% in January 2022, before the Fed started raising rates, while a 5-year CD offered only 0.28%. 

A rate increase of that size can make a big difference to your bottom line. 

Say you opened a 5-year CD with a 0.28% yield and deposited $10,000 in January 2022. After five years, you’d earn more than $140 in interest. 

That same $10,000 would net more than $700 now. 

You can also find much better options among the best CD rates on the market.

Learn more. Use our CD calculator to see how much you could earn.

Capital One, for instance, offers a 5-year CD offering 3.90% APY, which would net almost $2,108 in interest. 

Are CD rates going up in 2024?

Those gains, however, have mostly run out of gas.

The Fed last raised interest rates in July 2023 and is expected to cut rates later this year in hopes of staving off a recession. 

“[CD rates] are likely to fall over the next six months as the Fed begins to cut interest rates and financial markets become more confident that the post-pandemic surge of inflation is behind us,” said Bill Adams, Chief Economist for Comerica Bank.

CD rates are heavily impacted by the federal funds rate set by the Federal Reserve. When the Fed increases interest rates, CD rates tend to rise. The relationship works the other way, too.

After the Federal Open Market Committee meeting in June, Wall Street believes that the Fed could begin cutting rates as early as September.

Why CD rates went up in 2022 and 2023

Interest rates rose steadily throughout 2022 after the Federal Reserve increased short-term borrowing costs from almost 0% at the beginning of the year to a range of 4.25% to 4.50% by December to force sky-high inflation down. As of June 2024, the federal funds rate sat in the range of 5.25 to 5.50%, where it’s been for almost a year.

Before then, rates had been at extraordinary lows for almost a decade in the aftermath of the Great Recession, when the Fed slashed borrowing costs to stimulate the economy. 

Quick tip. While high compared to the recent past, current CD yields are quite low by historic standards.

But even as the economy recovered, rates remained low alongside inflation. While that was good news for borrowers, it meant dismal savings rates for those with cash set aside in CDs or other savings accounts.

Factors that influence CD rates

Federal funds rate

Set by the Federal Reserve, this rate effectively determines the cost of money in the U.S. 

It’s what banks pay when borrowing money from each other or the government. It’s the base from which many rates are determined across the nation for both lending and savings products, including CDs. 

When the Fed raises interest rates, it means that banks need to offer higher yields to its customers in order to retain their business. 

Inflation

The Federal Reserve has a dual mandate: to keep prices stable (around 2%) and maximize employment. When inflation is growing too quickly, the Fed will typically raise the federal funds rate in order to slow down economic activity. 

This in turn will typically cause banks to increase the yield they offer customers, thereby improving the interest rate on the best CDs. 

Employment

Likewise, if inflation is stable and the unemployment rate is high, the Fed will cut interest rates, making it cheaper for banks to lend money, and thereby increase economic growth. This is what happened during the slow recovery from the Great Recession.

The current situation has been reversed: Unemployment was very low when inflation started to explode, which has allowed the Fed to dramatically increase rates without causing a recession.

Quick tip: You should have at least three-months worth of expenses in your emergency savings.

CD term length 

Typically, longer term CDs offer higher interest rates; banks need to pay you more to part for your money for longer. 

Today, though, that’s not the case. 

Banks are offering higher interest rates on short-term CDs, such as 6-month CDs, than they are for longer-term options, such as 10-year CDs. 

That dynamic reflects the broader market landscape. Right now, short-term yields are higher than long-term yields thanks to the Fed raising short-term rates and the market believing longer-term growth will slow.

Quick tip. Even though longer-term rates are lower, there’s still a case to include them in your portfolio.

Competition

Each CD provider offers different rates depending on their individual business needs. If an institution wants more deposits, offering CD rates that are higher or, at least, on par with top rivals can accomplish this. 

What are the best CD terms and rates

Right now, the best CD rates are above 5% APY for a 1-year CD. But keep in mind that the best one will depend on your needs. 

CDs are intended to be held for the entire length of the term, so you’ll want to choose a term that you feel comfortable with. You will not have access to your funds while they are in the CD. 

Quick tip. If you don’t think you can commit to a CD term, consider a no-penalty CD.

You’ll also want to look ahead at where you expect CD rates to go. 

Right now, experts are expecting rates to remain stable or drop. In this case, a longer term CD may be more beneficial since you can lock in today’s higher rates. 

But experts are not fortune tellers, so be sure to choose a term and interest rate that makes you comfortable. 

Where to find the best CD rates

Online banks tend to have the best CD rates. Unlike traditional banks, they don’t have to keep up with the overhead of managing brick-and-mortar branches. They’re also less well-known than the biggest players and typically want to make a splash, offering great yields to attract attention. 

To make your search easier, here are the best CD rates by term:

• Best 3-month CD rates.
• Best 6-month CD rates.
• Best 9-month CD rates.
• Best 1-year CD rates. 
• Best 18-month CD rates.
• Best 2-year CD rates.
• Best 3-year CD rates.
• Best 4-year CD rates.
• Best 5-year CD rates. 
• Best 10-year CD rates.

Tips for choosing the best CD terms for you

Regardless of where CD rates are heading, you can take action to lock in a worthwhile rate right now.

1. Consider what type of CD you want. Between traditional, no-penalty, bump-up, brokered, jumbo and more, you’ve got plenty of choices. Choose a CD that best suits your financial goals.
2. Pick the length. CDs come in a wide amount of terms. When you select a term, you’re giving up access to your funds for that period of time. (Although you may be able to cash it out if you pay an early withdrawal penalty, which can be steep.) Make sure you’re comfortable with the term length. 
3. Shop around. Some CDs offer higher rates than others. Comparison shopping can help you lock in the best CDs rate. 
4. Read the fine print. Don’t forget to look for fees and penalties before committing to a particular CD. 
5. Get insurance. Most CDs come with deposit insurance through the FDIC or the National Credit Union Administration (NCUA). But it’s important to confirm your funds are protected before you sign up.

CDs vs. savings account: Which is better for saving?

Whether CDs or savings accounts are better depends on your specific situation and you may decide to have both.

With high-yield savings accounts, you have access to your money at any time. Some banks have limits on how many withdrawals you can make per month, but the money is not locked away like it is with a CD. However, the interest rates on savings accounts are variable, so it can change at any time.

CDs, on the other hand, lock up your money for the term of the CD, but the interest rate is fixed. This can allow you to lock in a higher interest rate now, if you anticipate rates will go down in the future. 

“When trying to pick out which investment vehicle is the best fit for you, it is important to think about when you need the money and how much access you need to the money,” said Caroline Tanis, a strategist at Tanis Financial Group.

If you have money you know you will not need access to, getting a CD now might be a good idea. This will allow you to continue to earn today’s higher rates even after they go down. 

Frequently asked questions (FAQs)

How are CD rates determined?

CD rates ride national economic trends. When you’re shopping around for a specific CD, you’ll see that the rates depend on the term, how much money you deposit and the bank you choose.

Are CDs a good investment during recessions?

The Fed invariably cuts interest rates during recessions in order to get the economy humming. That will result in lower interest rates on savings products, including CDs.

Are CDs safe investments?

If you invest in a CD through a bank that has federal deposit insurance, your CD is protected from bank failure up to $250,000 per depositor, per account type. 

CDs also have a fixed interest rate so you know exactly what you will be earning during the period of the CD. 

Note that there are also brokered CDs that you can buy through investment firms; these follow different rules.

Should I open a CD or savings account?

You should likely open both a CD and a savings account. While CDs generally offer higher rates, savings accounts are liquid, allowing you to access your money freely. Here are the best online savings accounts.

Will CDs rise in 2024?

It’s unlikely that CD rates will rise in 2024. The Federal Reserve is expected to either maintain or cut rates this year, which would cause CD rates to remain stable or fall, respectively.

What is the highest CD rate now?

It’s not uncommon to see short-term CD rates above 5.00% APY. For example, the 1-year My eBanc Online Time Deposit offers 5.30%.

How often do CD rates change?

CD rates can change at any time and it’s not uncommon to see small fluctuations from month to month. Large changes typically coincide with changes to the federal funds rate, which typically happens a few times per year. 

How does the prime rate affect CD interest rates?

The prime rate is the interest rate that banks charge borrowers with the highest credit scores and is typically three points higher than the federal funds rate. 

The prime rate doesn’t directly impact CD rates.