Will CD rates go higher in 2024? (2024)

While you want to lock in the best possible yield when you open a certificate of deposit, that desire comes with a nagging doubt: What if rates go up tomorrow? Given that CD rates morphed from infinitesimal to boisterous as the Fed hiked borrowing rates over the past 18 months, any anxiety is justified.

The good news is that, with a little planning, you can use a variety of CD terms in order to meet your savings goals, while also staying ahead of a changing rate environment.

Why CD rates rose in 2023

Ever since the beginning of 2022, the Federal Reserve has taken a firm stance of keeping rates high to tame inflation, increasing short-term borrowing costs repeatedly since the end of the pandemic to levels not seen since before the Great Recession.

That caused price growth to moderate, albeit begrudgingly, falling from a 40-year high of roughly 9% in June 2022 to about 3% a year later. The Fed has correspondingly responded by signaling that it may be done with its efforts.

“The pundits believe the Federal Reserve is nearing the end of their hiking cycle,” said Mark R. Horn, certified financial planner (CFP) at Investment Initiatives in Alexandria, Va.

Still, high inflation has not yet been vanquished.

The Fed’s preferred inflation gauge (so-called core personal consumption expenditures, which strips out volatile food and energy costs) showed prices rising by 3.7% in September 2023, compared to the year prior, well above the Fed’s 2% target.

CD rates, especially with shorter terms, tend to follow the tidal shifts incited by the federal funds rate, which meant that rates rose considerably in 2023 after years of yielding next-to-nothing for years. You can easily find CDs that pay more than 5%, and yields on savings accounts likewise accelerated.

What CD rates will do in 2024

With inflation still well above the Fed’s target, and the economy continuing to hum along, it is unlikely that the Fed will dramatically reverse course anytime soon. (Reminder, the current range for short-term borrowing costs is 5.25% to 5.50%.) That means CD rates could remain this elevated for a while longer.

Fed officials project that the federal funds rate will be 5.1% in 2024, slightly down from current levels, but well above the near-zero range it occupied before the central bank decided to react to rising inflation.

Market participants generally agree with the Fed: Currently there’s a 97% chance the federal funds rate will be lower at the end of 2024 than it is today, per the CME FedWatch tool, with traders putting a roughly 40% chance that the Fed will keep its rate in a range above 4.75%.

The Fed will only meaningfully cut rates if the economy reverses course and heads into a prolonged recession. No one seems to be predicting a return to free money.

Therefore, it’s reasonable for savers to expect a small drift down from today’s high rates, without going down to the low rates that were the norm after the Great Recession.

You can probably expect, then, some banks to provide yields north of 5% throughout next year, especially on short-term maturities.

Tips for choosing the best CD

Regardless of where CD rates are heading next year, you can take action to lock in a worthwhile rate right now. Here are some tips to help you choose the best CD for your situation:

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. For example, if you are worried about missing out on higher rates in the future, consider a bump-up CD.
2. Pick the term: CDs come in a wide range of term options. 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. Confirm deposit insurance: Most CDs come with deposit insurance through the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Administration (NCUA). But it’s important to confirm your funds are protected before you sign up.

Best CD rates in 2023

“[M]ost longer-term CDs will have a lower rate than a shorter-term CD,” said Tiffany Johnson, CFP and co-owner of Piece of Wealth Planning, based in Atlanta.

For example, the average yield on a 12-month CD in October 2023, per the FDIC, was 41 basis points higher than the average yield on a 60-month term. (The top rate among our favorite one-year CDs is 5.60%, compared to 4.75% for five-year CDs.)

That’s largely due to the Fed deciding to hike short-term interest rates (which it controls) to stymie inflation, while market participants expect the economy to slow over the long-term, thereby pushing down longer-term yields.

If you’re going after the highest yield, then, look to short-term options.

However, you shouldn’t ignore longer-term yields altogether, especially if the economy does slow in 2024.

In that case, longer-term yields will fall. If you lock in a five-year fixed-rate CD yielding 4.75%, for instance, you’ll still earn that rate if your bank is offering a yield of, say, 3% on that same maturity a year from now.

Typically, you want to lock in a CD that matches your time frame. If you’re looking for a safe space to park your 13-year-old’s college savings, a five-year CD yielding close to 5% makes sense, even if a one-year CD rate is higher.

Another option, especially for those without a definite savings goal, is to construct a CD ladder.

This involves purchasing several CDs of various term lengths so your deposits are diversified. As the CDs mature, you can choose to reinvest the funds or spend them on something else.