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By Tim Maxwell
Edited By Matt Richardson
/ CBS News
The Federal Reserve's campaign to curb high inflation has led to interest rates hitting their highest mark in 22 years. The range for the federal funds rate now sits at 5.25% to 5.50%.
While high interest rates raise the cost of borrowing on loans and credit cards, it's been a boon for deposit savings accounts. For example, the average rates for top certificates of deposit (CDs) available online are around 5.50% for CDs ranging from six months to five years.
This figure presents a stark contrast from rates just a few years ago. Near the end of 2020, the average five-year CD earned a paltry 0.39% annual percentage yield (APY). Rates fell even further in 2021, with 5-year CD yields of 0.26% before rising in 2022. By the beginning of 2023, CD rates were at 4.50%. According to the Federal Deposit Insurance Corporation (FDIC), rates range from 5.52% for a one-month term to 4.23% for a 60-month CD.
Now, the top-of-mind question is where CD interest rates are headed from here. We spoke with a few experts to get their take.
Start by exploring some top CD rates here to see how much more you could be earning on your money.
CD interest rate forecast for 2024
Here's what some expect for CD interest rates for next year.
Where will CD rates stand at the start of 2024?
Experts largely expect rates to remain the same to begin the new year. "I believe CD rates will kick off 2024 relatively in line with current levels," says Jeff Rose, CFP and founder of GoodFinancialCents.com. "Given the ongoing economic recovery and the Fed's strategic moves to control inflation without stifling growth, it's plausible that CD rates will remain somewhat steady as we enter 2024."
Mitlin Financial's Founder and Lead Wealth Advisor, Lawrence Sprung, maintains a similar view, adding, "I think we will see rates on CDs, generally speaking, be around the same levels we are seeing them today. You will see certain banks offering higher rates to attract deposits, but I would not expect them to be considerably higher or lower than where they sit at currently."
Explore today's top CD rates now.
How much (or how little) will CD rates drop in 2024?
According to a Bankrate survey, 78% of economists don't expect the Federal Reserve to cut interest rates until 2024, which mirrors the Fed's projections.
Sprung maintains that 2024 CD rates will depend on several factors, including the Fed's interest rate actions and how the fixed-income markets play out. "My crystal ball is not working at the moment, so based on my views, I would not expect rates to drop much unless we see the economy begin to stall out—which would not be a great thing—which would spur the Fed to begin to decrease rates," says Sprung. "Our forecast at the moment is that rates will stay relatively flat throughout 2024, and we will not begin to see interest rates decline."
What will CD rates look like for the end of 2024?
Of course, it's a fool's errand to predict with 100% accuracy what the Fed will do a year from now and what the economy will look like. But we can look at the Fed's statements along with specific economic indicators to gain enough information to make educated projections.
"The trajectory of CD rates in 2024 will be contingent on factors such as inflation, central bank policies and the broader economic climate," says Bryan Cannon, CEO and chief portfolio strategist at Cannon Advisors. "In the event that inflation, or even stagflation, persists as a concern, CD rates are likely to remain stable or potentially rise. Historical instances of CD rates reaching double digits, such as in the 1980s, indicate economic challenges, suggesting that an economy in distress could lead to higher CD rates as a response to those conditions."
Factors that could affect CD rates
The experts we consulted seem to agree that the economy, including the potential for a downturn or recession, and the Federal Reserve's actions will play significant roles in the direction of CD rates in 2024. Those will largely determine if rates increase yet again, stay where they are or even drop in 2024.
Accordingly, Cannon suggests a CD ladder strategy for offsetting potential declines in CD interest rates. "Given the various economic factors that impact interest rates, it's prudent to employ a duration ladder strategy to mitigate potential rate declines," says Cannon. "In the event that the Federal Reserve faces challenges achieving a soft landing and the U.S. enters a recession, it could lead to rate decreases. The extent of the decline would hinge on the severity of the recession, potentially resulting in a significant drop of several percentage points."
Start earning more with one of today's top CD rates here now!
The bottom line
With CD rates at their highest point in recent years, it may be an ideal time to lock in a solid rate for the short-term or long-term, depending on your goals. Experts often recommend aligning a CD's term with your savings goal. For example, if you want to save for a home down payment and you want to start seriously looking at homes in three years, locking a high yield on a three-year CD could be a good option. Of course, always weigh the pros and cons of any investment or savings option before proceeding.
