CD Interest Rates Forecast: Will CD Rates Go Up In 2024? (2024)

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Key Takeaways

  • After climbing for the past couple of years, CD rates appear to be flattening out and will likely decline later this year.
  • CD rates tend to track the federal funds rate. If the Fed rate goes up, CD rates increase, and vice versa.
  • The Federal Reserve has held the federal funds rate steady since September of last year. This will likely continue until inflation cools, at which point experts anticipate rate cuts.
  • National average CD rates are higher than in years past. The average 12-month CD earns 1.80% as of May 2024, according to FDIC data.

As the Federal Reserve continues to hold the federal funds rate steady, what’s happening to interest rates on certificates of deposit (CDs)?

After steady increases over the past couple of years, it appears CD rates have leveled off, too. And while they aren’t going down, forecasters say savers should keep their expectations in check.

Here’s an overview of where CD interest rates could be headed in 2024 and beyond.

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Are CD Rates Going Up?

CD rates may be flattening out. In July 2023, the Federal Open Market Committee (FOMC) again raised the federal funds rate, this time to a range spanning from 5.25% to 5.50%. In all of its meetings since then, however, the Fed decided to maintain the current target range for the federal funds rate. While the Fed is actively monitoring inflation, further rate increases seem unlikely.

Banks generally use the federal funds rate as a guide when setting rates on savings and lending products. As the federal funds rate increases, you can expect CD rates at many banks to follow suit, and vice-versa.

Fed funds futures contracts, which are based on the federal funds rate, provide additional insight into the market’s expectations of future interest rates. “Going by recent quotes in this market, there is very little chance that interest rates will change in the next few months,” says Amiyatosh Purnanandam, a professor of finance at the University of Michigan. “However, the market expects almost a 90% chance of a rate cut by the FOMC’s December meeting.”

Rates accurate as of November 27, 2023

In January 2022, the typical APY, or annual percentage yield, for a one-year CD sat at a mere 0.13%—a pandemic low, according to FDIC data. As of May 2024, average one-year CD rates are at 1.80%.

Other CD terms saw similar increases during the same time frame, including two-year CDs and five-year CDs. The average rate for the former increased from 0.17% to 1.54% and from 0.28% to 1.40% for the latter.

While the current averages may not sound very impressive, the best CD rates now surpass 5.00% APY for one-year CDs and 4.50% APY for two-year CDs and five-year CDs.

CD Rates Forecast 2024

While the federal funds rate climbed steadily in 2022 and 2023, rates have flattened and are expected to fall at some point this year. The CME FedWatch Tool, which measures market expectations for federal funds rate changes, shows that most experts expect rates to sit between 4.50% and 5.25% by December 2024.

At its 2024 meetings, the FOMC held the federal funds rate steady at a target range of 5.25% and 5.50%. It’s unclear whether rates will remain steady or decline in the near future.

While we have made a lot of progress in bringing inflation down from its peak in 2022, it’s still higher than what the Fed would like to see before lowering the federal funds rate. The Fed wants to see repeated evidence of lower inflation rates across various measures before feeling confident about cutting rates.

Amiyatosh Purnanandam, Michael Stark professor of finance at the University of Michigan

Just as banks have raised CD rates alongside federal fund rate increases, rates will likely drop when the federal funds rate eventually decreases. But as indicated in the FOMC’s latest statement, inflation is still too high, so we may not see significant rate cuts for a while.

CD Rate Trends From 2022 Through 2024

While there are no guarantees concerning how interest rates will move in the coming months, here are two predictions for CD rates moving into 2024.

Banks’ Motives Dictate Rates for CDs

Banks will do what’s best for their bottom lines, and having a gap between mortgage rates and CD rates increases profit. As the inflation rate cools from its 2022 highs, mortgage rates and CD rates are likely to fall as well, but at different paces.

While mortgage rates increased by over three percentage points in 2022, average CD rates only went up by around 2%. For now, banks will likely increase mortgage rates at a quicker pace than CD rates to maintain profit margins.

Treasury Bonds Will Pay More Than CDs

CD rates may be flattening, but if Treasury yields go down in 2024, CD rates could follow—regardless of what the federal funds rate does. Banks are often slow to adjust CD rates, which means the rates you find at your bank may pale in comparison to Treasury yields. There’s an incentive for banks to keep rates on savings products lower: Banks use CDs and other deposits to fund loans and investments in Treasurys, so the lower the rate they pay, the more they profit.

CD Rates From 2009 to 2023

The graph below uses historical FDIC data to display national average rates on CDs from 2009 to 2023 and highlights how CD rates responded to changes in central bank policies, inflation rates and broader economic indicators over the analyzed time span. Rates have been averaged for each year using data available from every month.

Source: FDIC National Rates and Rate Caps

In the years after the 2008 financial crisis, the country entered the worst economic downturn since the Great Depression. During this period, the Fed aggressively slashed interest rates to stimulate the economy and restore liquidity to the banking system. As economic conditions improved in the subsequent years, CD rates adjusted accordingly, stabilizing and eventually creeping upward.

In 2019, The Fed cut interest rates again in response to the economic slowdown caused by the U.S.-China trade war.

The year 2020 brought an unprecedented global pandemic that caught the world off guard. Within weeks, this virus spread around the globe and led to severe economic consequences. In the United States, roughly 20.5 million people lost their jobs in April 2020, and the unemployment rate jumped to 14.7%.

In an effort to support the economy, the FOMC dropped the federal funds target rate to a range of zero to 0.25%. However, as the economy bounced back shortly after, so did inflation. The strained supply lines due to Covid-19—paired with an increase in demand—caused prices to surge, and the FOMC had no choice but to implement consecutive rate hikes. CD rates responded accordingly and jumped drastically from 2021 to 2023.

Factors That Influence CD Rates

Just like mortgage rates, savings rates and credit card interest rates, CD rates correlate strongly with the federal funds rate. When the Federal Reserve increases its benchmark rate, interest rates across the economy, including CD rates, increase. Similarly, decreases in the federal funds rate cause CD rates to fall.

Part of the draw of opening a CD is that its earnings are guaranteed regardless of economic environment changes. If you lock in an interest rate by purchasing a CD, you’ll be paid that guaranteed rate for the entire term of the CD.

At the beginning of 2023, many Americans believed we were headed for a recession, but current opinions among economic pundits are decidedly mixed. The Federal Reserve typically reacts to recessions by reducing interest rates to trigger an increase in consumer and business spending.

The Federal Open Market Committee recently stated that it’ll keep the federal funds rate steady in the near future. If the economy falls into a recession, though, and the Federal Reserve reverses course and starts cutting interest rates, CD rates are likely to fall. However, its instinct to lower rates could be tempered by its desire to combat inflation.

Do CD rates go up with inflation?

Yes, CD rates typically rise with inflation but not directly because of inflation. Rather, the Federal Reserve increases the federal funds rate to combat inflation. And because interest rates throughout the economy are tied to the federal funds rate, when the Federal Reserve increases its benchmark rate, CD rates generally increase.

Do CD rates go up with the prime rate?

The prime rate is a benchmark widely used by banks when setting interest rates. Returns on savings accounts, interest-bearing checking accounts and CDs typically track the prime rate, which in turn tracks the federal funds rate. When the prime rate goes up, you can expect CD rates to rise.

Do CD rates go up during a recession?

Historical data suggests that CD rates track the federal funds rate, which has held true during past recessions. Typically, the Federal Reserve will lower interest rates during a recession to spur growth and reduce unemployment. Because CD rates follow the federal funds rate, CD rates will usually go down during a recession.

Will CD rates go up when the Fed raises interest rates?

Yes, like other deposit accounts, CD rates tend to rise whenever the federal funds rate increases. Banks and credit unions use the federal funds rate as a guide when setting rates on deposit products like CDs.

How Often Do CD Rates Change?

CD rates are variable, meaning they can change at any time. Most banks adjust CD rates according to fluctuations in the federal funds rate, which can change every month or two when the FOMC meets to make monetary policy decisions.

The FOMC may decide to maintain rates steady, in which case CD rates likely won’t change much either. If the Fed rate goes up, CD rates will likely increase shortly thereafter, and if the Fed rate goes down, CD rates will likely decrease.

How To Maximize the Benefits of Current CD Rates

With CD rates elevated, now is the time to take advantage of savings opportunities. Below are some tips to maximize savings benefits with CDs.

  • Shop around. Compare CDs at several banks and credit unions to find the highest rates. CDs have fixed rates, which means guaranteed returns based on the rate, account balance and term length. Securing the highest rate will help you earn the most interest over the course of the CD term.
  • Choose the best CD term. Consider how long you can keep available funds tied up in the bank when deciding which term length to choose. The last thing you want is to choose a term that is too long and end up having to withdraw funds early and pay a penalty. Also, keep your eye open for banks with higher promotional CD rates on specific terms.
  • Create a CD ladder. Increase your savings while maintaining some flexibility by creating a CD ladder. This strategy involves opening several CDs with different term lengths. When a CD reaches maturity, reinvest the funds into a new CD. CD ladders keep some money accessible in case you need it. Remember to shop CD rates each time you open a new CD to lock in the best rates.

Where To Find the Best CD Rates

It might be a good time to shop around for the best CD rates while APYs are still high, especially if you have funds you won’t need access to right away. Here’s where to find them.

  • Online banks often offer the highest rates—and charge the lowest fees—because they don’t carry the same overhead costs as brick-and-mortar banks.
  • Credit unions are also more likely to offer competitive CD rates. Because they’re nonprofit organizations, they can reinvest earnings into providing better accounts and services to members.
  • One-year CDs are currently paying some of the highest APYs.
  • If you’re flexible on term length, you can also look for promotional CDs, which pay temporarily elevated rates on unconventional terms (like 11 or 19 months) to attract customers.

Find The Best CD Rates Of 2024

Learn More

Frequently Asked Questions (FAQs)

Will CD rates go up in 2024?

Not likely. Many experts agree there’s a good chance CD rates have topped out for now, and rate cuts may take place later on in 2024.

When will CD rates go up?

Rates are unlikely to go up this year. How various interest rates—including those on CDs—move during the coming months will depend greatly on what the Federal Reserve does. The Fed boosted its benchmark federal funds rate numerous times throughout 2022 and the first half of 2023, finally holding rates steady at a target range of 5.25% to 5.50% through the second half of 2023. Rates may eventually begin to decline in 2024.

How much money should I have in CDs?

The amount of money you should keep in a CD depends on your financial situation and goals, and there’s no perfect number you should aim for. Instead, look at CDs as one piece of your overall investment strategy.

Keep in mind that CDs aren’t a great option for emergency savings because you’ll often pay penalties for withdrawals prior to a CD’s maturity. CDs also aren’t a good long-term investment option because returns on CDs are generally lower than returns on investments. In any case, you’ll need to deposit enough funds to meet the CD’s minimum opening deposit requirement.

Should I invest in a CD?

CDs offer guaranteed returns and are federally insured. If you have funds available to invest that you won’t need right away, CDs are an excellent way to build up your savings. It’s a good idea to have a fully-funded emergency fund in place so you don’t have to withdraw money from a CD before it reaches maturity.

If you decide to open a CD, consider future financial needs, how much money you can afford to keep locked up in a CD account, and for how long.

If you’re unsure if you can part ways with your cash long-term, you might be better off looking for the best high-yield savings accounts, which may offer rates comparable to CD rates.

CD Interest Rates Forecast: Will CD Rates Go Up In 2024? (2024)

FAQs

CD Interest Rates Forecast: Will CD Rates Go Up In 2024? ›

While the federal funds rate

federal funds rate
A higher fed funds rate means more expensive borrowing costs, which can reduce demand among banks and other financial institutions to borrow money. The banks pass on higher borrowing costs by raising the rates they charge for consumer loans.
https://www.forbes.com › investing › fed-raises-interest-rates
climbed steadily in 2022 and 2023, rates have flattened and are expected to fall at some point this year. The CME FedWatch Tool, which measures market expectations for federal funds rate changes, shows that most experts expect rates to sit between 4.50% and 5.25% by December 2024.

Are CD rates expected to rise in 2024? ›

Projections suggest that we may see no rate increases in 2024, and that the Fed might start dropping its rate later this year, according to the CME FedWatch Tool on June 11. If the Fed rate drops, CD rates will likely follow suit, though it's up to each bank and credit union if and when that occurs.

What is the interest rate expectation for 2024? ›

The 30-year fixed mortgage rate is expected to fall to the mid-6% range through the end of 2024, potentially dipping into high-5% territory by the end of 2025. However, recent economic developments have led some forecasters to believe that rates will remain elevated at around 7% for the remainder of this year.

What will CD rates be in 2025 in the USA? ›

Similarly, the Fed's interest rate cuts are not expected to be overly drastic, but rather, gradual. What this means is that come this time next year, you may not be able to sign a 1-year CD at 5% (or slightly more) like you can today. But it's possible that you'll be able to lock in a 1-year CD at 4.5%, or 4.25%.

Should I lock in a CD now or wait? ›

CD rates are at a 3-year high—but waiting longer to buy could be a gamble. CD rates have risen steadily over the past 12 months alongside the Fed's rate increases. Interest rates on certificates of deposits (CDs) have been increasing substantially since 2022—in lock-step with the Fed's rate hikes.

Can you get 6% on a CD? ›

You can find 6% CD rates at a few financial institutions, but chances are those rates are only available on CDs with maturities of 12 months or less. Financial institutions offer high rates to compete for business, but they don't want to pay customers ultra-high rates over many years.

What is the best CD rate for $100,000? ›

Best Jumbo CD Rates for June 2024
BEST NATIONAL JUMBO CDs
CD Bank5.20% APY$100,000
Luana Savings Bank4.42% APY$100,000
All In Credit Union4.13% APY$100,000
Best non-Jumbo option: TotalDirectBank5.51% APY$25,000
46 more rows

Where are CD interest rates going? ›

Currently, national average rates for a 1-year CD sit at 1.86% APY, up from 0.15% APY in April 2022. But with no change to rates since December 2023, it doesn't appear rates will continue to go up, at least significantly.

What is the interest rate forecast for the next 5 years? ›

The median projection for the benchmark federal funds rate is 5.1% by the end of 2024, implying just over one quarter-point cut. Through 2025, the FOMC now expects five total cuts, down from six in March, which would leave the federal funds rate at 4.1% by the end of next year.

What could interest rates be in 2025? ›

Prediction of Mortgage Rates for 2025
  • Fannie Mae: 6.1%
  • Mortgage Bankers Association: 5.9%
  • National Association of Home Builders: 6.01%
  • National Association of Realtors: 6.2%
Jun 6, 2024

Where can I get 7% interest on my money? ›

Why Trust Us? As of June 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.

Why are 6 month CD rates higher? ›

CD rates are largely influenced by the federal funds rate. As such, the banks are more willing to offer a high rate on a short-term CD because they're more likely to turn a profit due to the elevated federal funds rate.

How to avoid tax on CD interest? ›

If the CD is placed in a tax-deferred 401(k) or individual retirement account (IRA), any interest earned on the CD may be exempt from paying taxes in the year it was earned. 2 Instead, you will pay taxes on that money when it is withdrawn from the 401(k) or IRA after you retire.

What are CD rates supposed to do in 2024? ›

CD Rates Forecast 2024

The CME FedWatch Tool, which measures market expectations for federal funds rate changes, shows that most experts expect rates to sit between 4.50% and 5.25% by December 2024.

Is it worth putting money in a CD right now? ›

CDs can be a smart financial move at times, but not so great at others. In the past, other investments earned higher rates than even the best CDs could earn. But, in today's high-interest-rate environment, CDs might be a great option. Here are the pros and cons of CD investing in 2024.

Should I close a CD early to get a better rate? ›

When you open a CD, you lock in the interest rate for the entire term. If you open a CD when rates are low and rates then rise in a big way, it may be worth breaking your CD to secure a higher rate. For example, let's say that breaking your current CD will result in a $25 early withdrawal fee.

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