If you purchase something from the links on this page, we may earn a commission.
Interest rates on certificates of deposit are red hot. Will the streak of increases continue?
The latest breaking updates, delivered straight to your email inbox.
Interest rates on certificates of deposit are red hot. Will the streak of increases continue?
Ann C. Logue is a freelance writer specializing in business and finance. She is a chartered financial analyst, and before coming into writing, she worked for 12 years as an investment analyst. She’s written five books on investing for Wiley’s …For Dummies series, and her freelance writing has appeared in the New York Times, Barron’s, Newsweek, and Entrepreneur, among others. She can be reached at annlogue.com
Hearst Television participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites. This may influence which products we write about and where those products appear on the site, but it does not affect our recommendations or advice, which are grounded in research.
Mobile app users, click here for the best viewing experience.
The early months of 2023 have been a boon for savers: The best interest rates on certificates of deposit (CDs) have topped 5%, the highest they’ve been in about 15 years. Since CDs require a commitment, however, that leaves many wondering: Will CD rates go up even more in 2023? Or have they hit their peak? The answer depends on where the economy goes as well as what happens in the banking system.
An interest rate is nothing more than the price of money, and like any price, it’s determined by supply and demand. The more that consumers, businesses and governments want to borrow money, the higher rates will go. The more that people want to save, the lower rates will go. Of course, the Federal Reserve system can give rates a nudge to help manage the economy.
According to Bankrate’s most recent data, the average CD rates for the week of March 22 are:
If you’re willing to shop around, however, you may find higher rates, especially if you consider online banks, which tend to pay more interest.
CD rates are based in part on the federal funds rate, which is the interest rate on balances that banks hold at the Federal Reserve banks. When the central banks want to soften or strengthen the economy, they adjust the rates that they charge or pay banks in the system. The Fed has raised the federal funds rate nine times in the past year in an aggressive campaign to cool inflation. Most recently, it hiked interest rates by 0.25% on March 22, bringing the benchmark borrowing rate to between 4.75% and 5%.
Member banks then set the rates that they charge on loans and pay on savings accounts, including certificates of deposit. Considerations include the fed funds rate, whether the bank needs deposits to fund its loan portfolio, and what competitors are doing. To protect member banks from overpaying to attract capital, the Federal Deposit Insurance Corporation sets a cap for less than well capitalized institutions.
Because many factors go into setting CD rates, savers find it pays to check out the offerings at multiple banks before locking their money away.
Several economists have made interest rates forecasts for 2023, which give some insights for the direction of CD rates.
Of course, forecasts quickly become outdated. For example, the failure of Silicon Valley Bank in early March, and the revelation of weaknesses at other banks, has increased risk in the economy. That is likely to lead to increased interest rates.
Because a CD is a commitment, you’ll want to consider how it fits into your personal financial picture.
The consensus for interest rates seems to be that rates are likely to be steady this year. This means that CD rates are probably as high as they are likely to be. Still, if you’re concerned about missing out, look for CDs that have no penalty for moving funds into a CD with a higher rate.
Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.
This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at lauren.williamson@hearst.com.
Hearst Television participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites.
