Are CD rates going up? Here’s what to know

Are CD rates going up in 2023? In a word, yes. Learn more about when CD rates will go up, plus how they’re determined.

Interest rates are going up … again. That was a common refrain in 2022, with the Fed raising interest rates several times to rein in inflation. According to BankRate, this trend has continued in 2023. While it’s gotten more expensive to borrow money, there is a silver lining: Certificates of Deposit (CDs) now have more attractive rates.

As the Fed has raised rates, many financial institutions have also raised rates on their CDs. And because many CDs offer fixed rates, savers have the opportunity to lock in favorable CD rates. So, what are the current CD rates? And when will CD rates go up?

Before answering those questions, you might need a quick review of CDs. A CD is essentially an agreement between you and your bank. You agree to deposit your money for a fixed amount of time and, in return, the bank guarantees you a specific CD interest rate.

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How are CD rates determined?

You might wonder when will CD rates go up in 2023? First, it’s important to understand the factors that typically influence how CD rates are determined:

Current CD rates are affected by the interest rate environment

If you’re wondering when CD rates will go up in 2023, you’ve got to consider the interest rate environment. The higher the interest rate, the more banks are typically willing to pay on deposits. Although it’s not an exact science, you can expect that as the Fed raises its rates, banks and credit unions will likely follow suit.

Current CD rates are affected by the length of time until maturity

One of the ways that a CD’s interest rates are determined is the length of time until your CD matures. This is known as the term of the CD, and it typically falls somewhere between three months and 10 years. As a rule of thumb, the longer timeframe, the higher the CD rate typically is.

When will CD rates go up?

CD rates climbed steadily in 2022, according to Bankrate. And since CD rates are influenced by the Fed’s actions—and some believe the Fed may continue to raise interest rates in 2023, albeit at a slower, more deliberate pace, according to another Bankrate article—it’s probably a good guess that CD rates will also continue to rise, at least for a while.

The Fed typically decides whether to raise rates, lower rates, or keep rates unchanged during its Federal Open Market Committee (FOMC) meetings. It holds eight of these meetings a year. According to Bankrate, so far in 2022 and 2023, the Fed has raised the target federal funds rate (also known as the Federal Reserve interest rate) ten times, to:

  • 0.25%-0.50% in March 2022
  • 0.75%-1.00% in May 2022
  • 1.50%-1.75% in June 2022
  • 2.25%-2.50% in July 2022
  • 3.00%-3.25% in September 2022
  • 3.75%-4.00% in November 2022
  • 4.25%-4.50% in December 2022
  • 4.50%-4.75% in February 2023
  • 4.75%-5.00% in March 2023
  • 5.00-5.25% in May 2023
  • 5.25-5.50% in July 2023

How can I get the most favorable CD rates?

To get a good CD rate, you could start by opening a CD account while interest rates are so favorable. It’s important to shop around for the most ideal rates. The Discover high-yield CD, for instance, allows you to earn guaranteed returns with terms from three months to 10 years.

Another way to earn more interest is to lengthen the term of your CD.

Here are some basic guidelines to follow when choosing the term of your CD:

  • Determine how long you are willing to leave your money untouched. Look for the best CD interest rates available within this time frame.
  • If interest rates are expected to rise in the near future, consider a shorter-term CD so that you’re not locked into low yields while rates increase.
  • If CD interest rates are flat or expected to decline, consider choosing a longer-term CD to lock in a better rate.

Don’t forget the potential penalties

CDs typically come with early withdrawal penalties, which can wipe out returns on even the best CD interest rates if you need to take the money out before the term is up. So, make sure the maturity dates you select work with your cash needs and brush up on the different ways to avoid bank fees that can slowly eat away your savings.

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Looking for more savings vehicles that are benefiting from higher interest rates? Check out the benefits of money market accounts.

The article and information provided herein are for informational purposes only and are not intended as a substitute for professional advice.

Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.