Ideally, savers should open a certificate of deposit (CD) when rates are higher to lock in a fixed rate for a set period of time so they can earn the best long-term return on their money.
Interest rates are doing well, with benchmark rates at their highest since 2001, according to the Federal Reserve. But how long will it stay that way? We at the MarketWatch Guides team spoke to two financial experts to discuss what they believe the future holds to help you make the best decision about where to invest your money.
Key Takeaways
- Despite being relatively flat in 2024, CD rates have been steadily increasing since 2021 and are among the highest they’ve been since the early 2000s.
- CD rates typically change according to the Federal Reserve’s policies, inflation and the economy’s overall health.
- Financial experts and markets believe CD rates will likely decrease soon as the Federal Reserve has indicated possible rate cuts before the end of the year.
Current CD Rates and Trends
After several years of rate increases, CD rates have stayed mostly flat in 2024 with little change in the national average rates from Jan. 16, 2024, through July 15, 2024, according to the Federal Deposit Insurance Corp. (FDIC). There have been slight annual percentage yield (APY) decreases at some banks, but the market has generally remained steady this year.
Today’s CD Rates
Here are the FDIC’s current national average CD rates:
| CD Term | Rate* |
|---|---|
| 1 month | 0.23% |
| 3 months | 1.53% |
| 6 months | 1.81% |
| 1 year | 1.85% |
| 2 years | 1.58% |
| 3 years | 1.44% |
| 4 years | 1.36% |
| 5 years | 1.43% |
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It’s possible to find much better offers than the national averages, though. Here are some of the best CD rates on the market right now:
| Financial Institution | CD Term | APY* |
|---|---|---|
| Shoreham Bank | 3 months | 5.50% |
| HAB Bank | 6 months | 5.50% |
| Merchants Bank of Indiana | 1 year | 5.92% |
| Merchants Bank of Indiana | 2 years | 5.92% |
| Merchants Bank of Indiana | 3 years | 5.92% |
| California International Bank | 5 years | 4.39% |
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CD Rate Trends
Shorter-term CDs — ranging from three months to one year — tend to pay higher rates. According to national average rates, six-month CDs and one-year CDs offer the highest rates right now, higher than longer-term options such as five-year CDs.
Overall, CD rates are among the highest they’ve been since the early to mid 2000s. The last time they were this high was in 2006 to 2007. However, they are still far lower than CD rates in the 1980s. At that point, it was possible to find CDs paying interest rates between 10% to 20%.
Economic Factors Influencing CD Rates in 2024
“CD rates are primarily influenced by Federal Reserve policies, inflation rates and overall economic conditions,” said Dennis Shirshikov, an economics professor at the City University of New York.
Here are the factors that affect CD rates:
Federal Reserve Policies
The Federal Reserve (also known as the Fed) sets a target range for the federal funds rate. This is the rate banks charge when they lend money to each other overnight. The Fed rate directly impacts CD rates by creating a benchmark. The fed funds rate currently has a target range of 5.25% to 5.50%, though the fed’s long-term goal is a target rate of 2%.
“Shorter-term CD rates move almost identically with the Fed’s target rate,” said Josh Stillwagon, economics professor and chair of the economics division at Babson College. “Longer-term CD rates also move in anticipation of Fed rate changes. When the Fed rate goes up, so do CD rates and vice versa.”
Inflation Rate
The Fed uses interest rates to manage inflation and rising prices. It has hiked interest rates 11 times since March 2022 to control inflation related to the COVID-19 pandemic. As a result, CD rates have gone up, too.
Now that inflation is more under control, the Fed has stopped increasing rates — the last rate increase was in July 2023 — and is considering rate cuts for late 2024 and beyond. This would likely reduce CD rates.
Economic Conditions
When inflation is high, the Fed raises interest rates in an effort to control inflation and slow the economy. When the economy is slow and inflation is low, the Fed typically reduces interest rates to stimulate the economy and boost employment.
What happens for CD rates typically depends on the state of the economy for the rest of the year. Stillwagon said rates would have major drops if the country entered a recession but would have a slower decrease in an economic environment with a less dramatic slowdown.
“A demand-side recession would see significant rate declines,” Stillwagon said. “A soft landing would see more gradual declines.”
Expert Predictions for CD Rates in 2024
The answer to where CD rates will go in 2024 ultimately depends on economic conditions at the end of the year. Stillwagon believes rates will fall by the end of 2024.
“Barring a dramatic change in the economic outlook, the shorter-term CD rates seem likely to decline by year-end,” Stillwagon said. “This could begin as early as the September Fed meeting.”
Shirshikov is more bullish on the CD rate forecast in 2024. “I anticipate CD rates will remain relatively stable but could see modest increases,” he said. “If inflation remains high, the Fed may continue its rate hikes, pushing CD rates higher.”
Implications for Investors
In general, rising CD rates are better for investors as they can earn more on their savings. If you think CD rates may still increase this year, consider keeping your money in shorter-term CDs. When they mature, you can renew your CD or open a new CD with a higher rate. If you think CD rates will fall in 2024, investing in long-term CDs is better. That way, you lock in the chance to earn higher interest rates for years.
Investors could also consider brokered CDs, which are bank-issued CDs for investment and brokerage firm customers. Brokered CDs can be sold through a secondary market to other investors, so you could potentially profit if rates fall and you’re able to sell.
If you’re not sure on a plan, consider meeting with a financial advisor to determine how to best coordinate the CD market with the rest of your portfolio.
How To Take Advantage of Today’s Rates
You can use a few strategies to take advantage of today’s rates while accounting for changing economic and financial conditions.
Use a CD Ladder
A CD ladder can help you benefit from both rising and falling rate conditions. With this strategy, you split your money between short-term CDs and long-term CDs with various maturity dates. If rates drop, you’ll still keep earning a high rate with the long-term CDs. If rates rise, you can renew your short-term CDs or open new CD accounts, short- or long-term, at higher rates.
Search Beyond the National Banks
Financial institutions can offer dramatically different CD rates, so it’s important to adequately research the market before opening a CD. For instance, online banks and credit unions typically offer much more competitive rates than large, national banks.
Pay Attention to Your CD Renewals
If you have a CD that’s about to mature, don’t automatically renew it. Instead, consider other lenders to see if there are better deals available, either for your chosen term or a different term.
Keep Some Cash Liquid
Even though today’s high-yield CD rates are tempting, still keep some cash in an easily accessible savings account for emergencies. That way, you won’t need to risk taking funds from a CD early and pay an early withdrawal penalty.
FAQ: CD Rates Forecast
Financial markets don’t expect CD rates to go up in 2024. The Federal Open Market Committee (FOMC) is expected to issue a rate cut in the last half of 2024, which would likely lower CD interest rates.
Some of the best alternatives to CDs are other deposit accounts since these accounts are FDIC-insured up to $250,000 per bank, per depositor and per account category type. High-yield savings accounts (HYSAs) and money market accounts (MMAs) are two great options to consider since they tend to pay high interest rates. While you can freely withdraw your money from HYSAs and MMAs, they don’t guarantee an interest rate for years like a CD.
Another CD alternative you may want to consider includes investing in bonds, which offer a fixed interest rate over a set number of years. While generally safe, there’s still some risk involved. You could also consider fixed annuities, which are insurance contracts that pay a guaranteed interest rate, since they may offer higher rates than CDs. However, you must keep your money in the annuity until you turn 59 ½, or you’ll owe tax penalties.
Whether you should invest in a CD now or wait depends on if you think rates will still increase or fall. If you think rates will fall, you should invest now, particularly in longer-term CDs. If you believe rates will still increase, it may be a good idea to open short-term CDs or wait. Since CD rates in 2024 are the highest they’ve been in years, there’s a good chance this is the best time to invest in a CD for the immediate future.
*Data accurate at time of publication
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