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

After steady increases over the past couple of years, certificate of deposit (CD) rates are declining as the Federal Reserve cuts short term interest rates. 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.

Are CD Rates Going Up?

CD rates are starting to decline. In November 2024, the Federal Open Market Committee (FOMC) cut the federal funds rate by 25 basis points to a range of 4.50% to 4.75%. This move followed a 50 basis point cut six weeks earlier. 

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

Right now, the federal funds rate is the federal funds rate is likely to keep declining as inflation continues to cool. “We certainly have made progress on the inflation front,” says Amiyatosh Purnanandam, a professor of finance at the University of Michigan.

^{Rates accurate as of December 31, 2024}

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 December 2024, average one-year CD rate is 1.83%.

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 1.52% and from 0.28% to 1.32% for the latter.

While the current averages may not sound very impressive, the best CD rates now surpass 4.00% APY for one-year CDs and two-year CDs, but only 3.50% for five-year CDs.

CD Rates Forecast 2024

The Fed cut the federal funds rate for a second time this year in November, and there’s a good chance the central bank will continue to do so at its December meeting.

The CME FedWatch Tool, which measures market expectations for federal funds rate changes, shows that most market participants expect another 25 basis point cut in December 2024.

CD rates will likely continue to drop as the federal funds rate declines.

CD Rate Trends in 2024

Here’s what you can expect from CD yields as 2024 winds down.

Banks Will Lower CD Yields

Banks stopped raising CD yields in the early part of 2024 when it appeared likely that the Fed would cut rates. Over the course of the year, yields started to drift downward as it became clear the Fed would act.

With the Fed likely to continue to cut rates into 2025, you should expect yields to continue to drop. Still, the decline will stabilize once banks understand when the Fed will stop raising rates.

Treasury Bonds Will Pay More Than CDs

Still, banks adjust CD rates more slowly than bond prices change, 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 savings rates and credit card interest rates, CD rates tend to move 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.

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.

Frequently Asked Questions (FAQs)