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The yields on many certificates of deposit (CDs) will continue to climb at the start of 2023, yet they’ll eventually start to taper off as the Federal Reserve puts the brakes on its interest rate hikes and the economy slows around the middle of the year.
“The Fed isn’t done raising rates yet, so there is more room to run on savings accounts, money markets, and short-term CDs, while long-term CD yields will peak early in 2023,” says Greg McBride, CFA, Bankrate chief financial analyst. “Once the Fed moves to the sidelines and loan demand weakens with the economy, the impetus for further increases in deposit rates will be removed.”
- The national average rate for one-year CD rates will be at 1.8 percent by the end of 2023, McBride forecasts, while predicting top-yielding one-year CDs to pay a significantly higher rate of 5 percent at that time.
- The national average yield for five-year CDs at the end of the year will be 1.5 percent, McBride predicts, with top-yielding five-year CDs paying 4.1 percent.
- The national average rate for one-year CD rates started out at 0.14 percent in 2022, and it rose to 1.38 percent by the end of the year. At the start of 2022, the national average rate paid by five-year CDs was 0.26 percent, and it climbed to 1.15 percent by year’s end.
CD rates climbed steadily in 2022
The year 2022 was a good one for savers, as interest rates climbed at the fastest pace in 40 years. In fact, rates on many CDs were the highest they’d been in more than a decade. The national average rate for one-year CDs climbed by 1.22 percentage points, while the rate for five-year CDs rose by 0.9 percentage point.
CD rates should continue to rise for now
Average CD rates climbed steadily throughout 2022 as the Fed hiked interest rates by 4.25 percentage points, which was the fastest pace in more than four decades. Yields on CDs continue to climb as we head into 2023 and the Fed raises its rates further.
CD yields should eventually level off as the year progresses, however, as the economy is expected to weaken further and the Fed may stop lifting the federal funds rate. Historically, the Fed raising rates has been a catalyst for higher CD rates.
“The top-yielding banks will maintain their competitiveness with savings accounts and short-term CDs leveling out while longer-term CDs pull back in the second half of the year,” McBride says.
Where to find the best CD rates
The national average rate on CDs continues to rise as we head into 2023, yet you can find an account that out-earns the national average significantly if you shop around among banks. Unlike brick-and-mortar banks, online banks don’t have to bear the costs of maintaining branches, so they often pass these savings along to customers in the form of higher rates.
“As always, there will be a substantial difference between the national average and the highest-yielding, nationally available offers, so shopping around will be paramount. Put your cash where it will be welcomed with open arms and higher returns!”
— Greg McBride, CFABankrate chief financial analyst
Once you’ve found a bank that pays highly competitive CD rates, be sure to go with a CD term length you’re comfortable with based on when you may need the money. CD terms typically range from one month to 10 years.
Money for your emergency fund or other potential short-term expenses is better off in a liquid savings account than in a CD. This is because CDs typically charge an early withdrawal penalty if you need access to the cash before the term expires.