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

As the Federal Reserve hiked interest rates in 2023, interest rates on certificates of deposit (CDs) also rose steadily. But forecasters say savers should keep their expectations in check for 2024.

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

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 the remainder of its 2023 meetings, however, the Fed decided to maintain the current target range for the federal funds rate. In its Summary of Economic Projections, the Fed indicated it may cut rates at least three times in 2024.

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.

Recent bank failures have many consumers worried about whether funds kept in CDs are as safe as claimed. The good news is that your bank deposits are FDIC-insured up to $250,000 per depositor, per account ownership type and per financial institution. Some banks have raised rates during this period of uncertainty to incentivize existing customers and attract new ones.

When Will CD Rates Go Up?

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 are expected to decline in 2024.

When the federal funds rate rises, interest rates normally rise on mortgages, credit cards, CDs and other loan and deposit products. This means that we likely won’t see further CD rate increases for a while—in fact, CD rates are expected to remain steady for now and eventually decline in 2024.

CD Interest Rates Forecast for 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.

CD Rates Will Plateau and Eventually Fall

With the Federal Reserve pausing rate hikes throughout the latter half of 2023, CD rates are expected to remain steady in the coming months. In its Summary of Economic Projections, the FOMC indicated that we will likely see at least three rate cuts in 2024. This means that CD rates will probably fall along with the Fed rate, although we don’t know when exactly this will happen.

Changes in Treasury Yields Could Impact 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.

Average CD Rates This Week

Rates accurate as of December 11, 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 November 2023, average one-year CD rates are at 1.85%.

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 1.55% APY and from 0.28% to 1.39% APY for the latter.

While the current averages may not sound very impressive, the best CD rates now surpass 5.50% APY for one-year CD, 5.00% APY for two-year CDs and 4.65% APY for five-year CDs.

What Will CD Rates Be in 2024?

It’s difficult to predict exactly what CD rates will look like in 2024. While the federal funds rate had been steadily climbing for a couple of years, the CME FedWatch Tool, which measures market expectations for the fed fund rate changes, shows that most expect rates to fall between 4% and 4.75% by the end of 2024. The Fed also indicated it expects at least three rate cuts in 2024.

The Fed had been raising rates to combat inflation, and although inflation still hasn’t reached its target, Fed chair Jerome H. Powell indicated that it’s well on its way.

While this makes further interest rate hikes unlikely, Powell also pointed out that “the path forward is uncertain.” When exactly the federal funds rate—and CD rates—will begin to fall remains to be seen.

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.

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.

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.

What About a Recession?

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.

If the economy does enter recession territory, the Federal Reserve is likely to react by reining in interest rates—but its instinct to lower rates could be tempered by its desire to combat inflation.

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.

Where To Find the Best CD Rates

If CD rates continue to increase in the coming months, it might be a good time to shop around for the best CD rates, especially if you have funds you won’t need access to right away.

Typically, you’ll find higher CD rates offered by online banks or credit unions. Online banks don’t carry the same overhead costs as operating bank branches, so they often charge fewer fees and offer higher rates.

How Much Money Should I Have in CDs in 2024?

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.

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.

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.

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