The interest rates you can get from deposit accounts at banks have soared over the past two years. It wasn’t too long ago where a 2% APY on a “high-yield” savings account or CD was considered a great find. But as of this writing, it’s not difficult to find CDs with 5% or greater yields, thanks to the recent inflationary environment that has led to rapid increases in benchmark interest rates.
This raises the question — how high could CD rates go? Could we see 7% CD yields before the end of 2024? While nobody has a crystal ball that can anticipate the future direction of interest rates, here’s what we know and what you can expect going forward.
Where CD yields stand today
Before we get into a discussion of where CD interest rates could go, here’s a bit about where things stand right now. As you might expect, the best CD yields can be found at online banks (for the most part), and here’s what you can get as of Dec. 11, 2023:
- Our top-ranked 1-year CDs have yields ranging from 4.25% to 5.61%, with most in the low-5% range.
- Our top 18-month CDs have yields as high as 5.6%.
- 2-year CDs with yields as high as 5.5% can be found.
- Most of our top online banks have 5-year CDs with yields in the 4% ballpark.
Be sure to check our best CD rates page for the latest offers from our top-ranked banks.
Using the high end of the 1-year and 18-month ranges as a guideline, this means that CD yields would need to boost by about 140 basis points (1.4%) from current levels to produce 7% CD yields.
It’s worth noting that historically, the longer your CD’s maturity length, the higher the APY you could expect to get. But the opposite is generally true right now. I don’t want to turn this discussion into an economics lesson, but the general idea is that when short-term CDs pay more than longer-term ones, it indicates that interest rates are expected to reject going forward (you may have heard the term “inverted yield curve” on the financial news, and this is a form of one).
Interest rate projections for 2024
With that last point in mind, let’s take a look at what experts think interest rates are going to do in 2024.
The short version is that most experts expect rates to fall. But there is little agreement when it comes to the magnitude of a potential reject.
The latest version of the Federal Reserve’s economic projections (by the people who actually make policy decisions) calls for a single 0.25% rate cut, compared with current levels, in 2024. However, it’s worth noting that this is from the September Fed meeting, and the inflation data since then has generally been better than expected.
On the other hand, according to the CME FedWatch Tool, the futures markets are pricing in a median of five quarter-point rate cuts by the end of next year (a total of 1.25%). Some experts think even more cuts will be needed.
However, one common theme among all of the predictions I could find from notable experts is that nobody thinks the benchmark federal funds rate will be higher at the end of 2024 than it is today.
The bottom line
One important thing to know is that while CD yields tend to advance in the same direction as benchmark interest rates, they aren’t usually directly tied to them. In other words, if the Federal Reserve cuts the federal funds rate by one percentage point in 2024, there’s no assure that CD yields will reject by the same amount — or at all.
Having said that, virtually every expert is predicting that interest rates will go down in 2024, not up. But that doesn’t mean the unexpected won’t happen. At the start of 2022, when mortgage rates were around 3%, few people would have predicted that they’d more than double over the course of the year. If inflation unexpectedly spikes, for example, it could provoke policymakers to raise rates, which would likely advance CD yields higher.
However, given the information we have now, it is looking more likely that CD yields could fall in 2024, so it could be a smart idea to take advantage of high-yield CDs in the near term. But again, there’s no assure rates won’t rise.
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