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

If you have a significant chunk of cash to stash, you’re in luck: Jumbo CDs—generally requiring a $100,000 minimum deposit—have better rates than investors have seen in years.

There’s a catch, though. In an unusual situation, many regular CDs offer higher yields than jumbos without the hefty deposit minimum and steep early withdrawal penalties jumbos entail. In other words, while today’s jumbo rates are certainly attractive, you don’t need to be a wealthy investor to get the best CD rates available.

Whether or not that situation will persist depends on dynamics among financial firms. In general, however, savers can expect CD rates to continue to rise somewhat in 2023—although many market watchers think they may be approaching their peak.

So whether you’re looking for a jumbo CD or didn’t think you could afford one, here’s what you need to know about jumbo CDs, where rates could go in 2023 and why regular CDs are the way to go.

What is a jumbo CD?

Like regular CDs, jumbo CDs are timed investments that pay you an agreed-upon interest rate for a fixed term, like six or 12 months. But jumbos earn their name from a higher minimum deposit—generally $100,000. In exchange, investors typically score a higher interest rate than a bank’s regular CDs with lower deposit minimums.

But that higher yield comes with strings attached: higher early withdrawal penalties. If you need to tap funds from a jumbo CD early, expect to pay anywhere from three to six months’ interest in penalties on the amount you withdraw before maturity. With a regular CD, early withdrawal penalties can range from zero with a no-penalty CD to six months’ interest, with higher penalties for multiyear CD terms.

Why are regular CDs a better deal than jumbos right now?

Traditionally most jumbo CDs are “brokered,” meaning they are sold by big investment firms, or brokerages such as Merrill Lynch or UBS. After all, it’s wealthy investors who are most likely to have $100,000 in cash sitting around, looking for a way to earn interest.

But there are relatively few large investment firms in the U.S. compared with thousands of national, regional and online banks. The upshot is that, when those few firms lose interest in taking jumbo CD deposits, as they appear to have right now, it can have a big impact on prevailing market rates for jumbo CDs.

While it’s possible to find bank-issued jumbo CDs, these institutions are more focused on everyday investors. Therefore, they offer the most competitive rates on savings accounts and regular CDs—which have opening deposits far more accessible to their target clientele.

How high could jumbo CDs go in 2023?

CD rates tend to follow Federal Reserve moves, which explains why CD rates ticked upward after each Fed rate hike in 2022. Savers can expect additional Fed rate hikes in 2023, but with inflation gradually coming under control, the Fed has already begun to slow their pace. And many observers worry the U.S. could enter a recession in 2023, meaning the Fed could change course and begin to slash rates.

Uncertain economic waters mean that CD buyers face a dilemma: If you buy a CD today and the Fed raises rates again, you’ll miss out on a bit of yield. But if you wait and a recession hits, the Fed may start to lower rates to stimulate the economy, and you could also miss out—perhaps on much more.

In the short term, the Fed seems committed to its course of raising rates. Fed Chairman Jerome Powell has said he’s more concerned with not doing enough to quell inflation than doing too much. Powell signaled in early December that he was targeting a 5% federal benchmark rate by March 2023—0.50% higher than the current rate.

Still, even if Powell follows that plan, his target suggests that CD rates—jumbo and regular—could be at or near their peak. For that reason, if you want to jump on a favorable CD rate today, you shouldn’t hesitate, according to Liz Young, head of investment strategy at online lender SoFi. “You could wait, but you’re not going to get that much more of a benefit in a [slightly higher] rate,” she says.

The difference between investing $100,000 in an 18-month CD yielding 4.25% and one yielding 4.5% is $383 over the term of the CD—or about 70 cents a day.

Meanwhile the risk of a recession, which would likely mean CD rates fall significantly instead of continuing to rise, is real. A majority of economists at 23 major financial institutions are predicting a recession in 2023, according to a recent survey conducted by The Wall Street Journal’s newsroom.

CD buying strategies

To find the best CD rates, you’ll want to look beyond jumbos and rate shop regular CDs. You’ll also want to skip bricks-and-mortar banks and focus on online-only banks. With lower overhead, they tend to offer better rates on most products, even when inflation is not a beast. Some online banks have yields hovering near 5% for 12- and 18-month terms compared with a big-name bank offering a paltry 0.03%.

A strategy that Denis Poljak, a wealth manager in Shreveport, La., favors with his clients is CD laddering—buying CDs that mature at different times. He’s particularly excited about short-term CDs: “They’re offering fantastic returns, and at rates we haven’t seen in years.”

The advantages to a laddered approach with regular CDs in the current economy are twofold. First, you can divide your cash—no matter how much you have to invest—up into smaller increments. And second, by doing so, you’ll win no matter which direction the Fed takes rates.

For example, say you bought four CDs of escalating maturity: three, six, 12 and 18 months. Regular maturities cannot only help you avoid pesky early withdrawal penalties. But when each CD matures, you can decide whether rates are favorable enough to reinvest. If so, you lock in a favorable rate for a new term. If not, you can cash out and seek better returns elsewhere.

And there’s a bonus if rates start to fall and you have CDs that haven’t matured yet: You’ll still earn higher-than-market rates on your cash for the remainder of the CD’s term.