How High Will CD Rates Go in 2023? (2024)

For years, the interest rates on certificates of deposit were so minuscule that they were barely worth a second look.

Well, savers might want to take that look now, because some one-year CDs are paying north of 4%—compared to less than 0.7% a year ago. In a year when both equities and bond funds have skidded south, that kind of guaranteed return looks very attractive indeed.

“Given the current high rates that savers haven’t seen for years, CDs are great to lock in right now,” says Rose Swanger, a financial planner in Knoxville, Tenn.

Whether or not CD rates will continue to rise in 2023 depends a lot on what the Fed does to fight inflation, with higher inflation likely higher interest rates.

In the meantime, it’s gotten a lot easier to earn at least a little extra cash on short-term savings you don’t keep in the stock and bond markets. “I often recommend clients use CDs for their emergency funds, as they are an ideal place to park one’s money while making it work much harder,” adds Swanger.

While CDs typically require you to lock up your money for a certain period, say, three months or a year, there are strategies to capture CDs’ attractive rates, while still having access to at least part of your savings. (More on that below.)

Where will CD rates go in 2023?

There is no direct relationship between CD rates and those set by the Federal Reserve, since banks can offer whatever interest rates they wish. But there certainly is an indirect one, in the sense that a rising tide lifts all boats.

So as the federal-funds rate heads north—currently set in a range of 4.25% to 4.5%—so too do average CD rates. Of course the Fed is taking such action in order to tamp down inflation, which has been so torrid in 2022.

But November inflation came in at 7.1%—certainly high, but far slower than the 7.7% recorded in October. That suggests that the Fed will soon back off on aggressive rate increases. The Fed has already begun to slow the pace of its rate increases, most recently raising the federal fund rate by 0.5 percentage points, after four straight 0.75 percentage point hikes.

And that means that CD rates likely have a little room to rise, but not a whole lot. The Fed itself has said it tentatively expects its benchmark rate to peak between 5% and 5.5% during 2023. In other words, about one percentage point above today’s levels.

“Probably sometime in the first half of next year the Fed will stop raising interest rates,” says Sameer Samana, senior global market strategist for the Wells Fargo Investment Institute. “Then if everything goes according to plan, and inflation starts to come down pretty quickly, there could be rate cuts in next year’s second half.”

Where to find the best CD rates

Just as with any financial product, the correct approach for consumers is to shop around. If you are keeping your search to your existing bank, your options will be limited.

While CD rates continually shift, it’s now possible to find rates of between 4% and 5% from well-known institutions like Capital One, BMO Harris, Synchrony and more.

If you are the client of a large brokerage firm, you may be able to find even better rates, through your investing account, although extra restrictions typically apply.

Another way to juice your rate: Stretch out that timeline, say to three or more years, and you find similar returns—if you are comfortable committing capital for that amount of time. If the Fed starts cutting rates next year, such an investment could prove prescient indeed: Alliant Credit Union, for instance, is offering 4.5% for a three-year certificate.

How to fit CDs into your portfolio

CDs may not be a huge portion of the financial markets, but they appeal to certain types of investors. First, if you have near-term needs, and want some guarantees that your principal will remain intact—if you are saving up for a down payment on a home, or your kid’s college tuition next year, for example.

They also appeal to those who are near or in retirement, who are shifting away from riskier investments and could use that interest income to live on.

It should be noted that CDs are a different breed from I Bonds, which are the current flavor-of-the-month. While the latter’s rates stand at 6.89%, that will adjust over time depending on inflation levels (its fixed annual rate of return is a more modest 0.4%). I Bonds also have purchasing limits—of $10,000 per person per year.

Savings accounts are a more liquid option than CDs, but as a result the yield won’t be quite as enticing. Offerings from institutions like Capital One, Bask Bank and Upgrade are currently all at 3% or higher.

As for CDs, savers should pick the duration that makes sense for you, and hold them to maturity, since the nature of the product is to lock up that capital. If you will need the money within six months, for instance, don’t opt for a one-year CD: Accessing that money early will typically cost you in penalties, erasing the interest or even eating into the principal.

A typical strategy is a CD ladder, where you hold CDs across a variety of durations—maybe a six-month, and a one-year, and a two-year or even longer. Holding shorter durations will protect you if interest rates continue to rise, because once they mature, you can just roll that money into a new CD at a higher rate.

But rates are so lofty right now, compared to recent history, that you don’t want to get too greedy and miss your chance at some juicy guaranteed returns. Says Wells Fargo’s Samana: “If you are thinking about whether to wait for even higher rates, we would say, don’t wait.”