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Interest rates on certificates of deposit play an important role for some savers. CDs’ fixed rates can offer guaranteed returns for terms of several months or years. And locking in a high CD rate can mean earning strong yields even if the economy enters a low-rate environment. Here’s an overview of where CD rates might be headed.

Yes, but CD rates are rising more slowly this year than in 2022. Here’s a quick comparison: From January to October 2022, the best one-year CD rates rose from around 0.50% annual percentage yields to 3% APY. But from January to October 2023, the top one-year CD rates climbed from mid-4% APY to mid-5% APY, according to a NerdWallet analysis. Despite the slowdown, these rates are some of the highest in more than a decade.

A big reason for the current rising-rate environment is the frequency with which the Federal Reserve has increased its federal funds rate. The Fed pushes up the target range of this Fed rate, which is the interest rate banks use to borrow money from each other, as one tool to curb inflation. Since March 2022, the Fed has raised its rate 11 times, with more increases in 2022 than in 2023. The last increase occurred after the Fed’s July 25-26 meeting^[0]

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Banks generally adjust their rates on new CDs in the same direction as Fed rate changes. Credit unions — the not-for-profit equivalent to banks — similarly raise rates on their CDs, known as share certificates.

“Rates are going up, but for CDs, [they’re] going up faster for credit unions than at banks,” says Dawit Kebede, senior economist at Credit Union National Association.

• High-yield CDs tend to be at online banks and online credit unions, which have rates that are whole percentages higher than national average CD rates. For example, the national averages are 1.79% for one-year CDs and 1.38% for five-year CDs. Top one-year yields are above 5%, and the best five-year CD rates are closer to 4%.

• Short-term CD rates remain higher than long-term rates, for national averages and among high-yield CDs, according to a NerdWallet analysis. This phenomenon, known as as an inverted yield curve, can reflect that banks expect that future interest rates are headed downward.

The Fed meets two more times this year: Oct. 31-Nov. 1, and Dec. 12-13. The likelihood of the Fed raising its rate in November is very low, but nearly one in four projections suggest that the December meeting will likely end in a small increase of 25 basis points, or 0.25 percentage point, according to the CME FedWatch Tool on October 24. CD rates may see a slight bump if the Fed pursues that increase, though it’s up to each bank and credit union as they consider rate changes to attract more deposits.

But 2024 might be the year that rates start to fall. The Fed’s fight against inflation is more likely to end in what’s known as a soft landing instead of a recession in 2024, according to a September forecast from the American Bankers Association’s Economic Advisory Committee. The committee consists of chief economists from some of the largest U.S. banks^[0]

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“If we have a soft landing scenario, where there is no significant damage to the economy, there is no reason for the Federal Reserve to keep rates up [at] a very restrictive range,” says CUNA economist Kebede, referring to the Fed rate’s target range. “By mid-next year, we may be closer to [the] inflation target, and then maybe the Fed will start cutting rates after that,” he says, noting that the direction of inflation or the labor market can affect this projection.

When the Fed rate drops, CD rates will likely drop too. But the drops might not be as drastic as they were after March 2020, when the Fed cut its rate to nearly zero. The Fed rate may drop more gradually over the next few years, according to the Fed’s September economic projections^[0]

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Lock in CD rates sooner than later. CDs are typically best for specific goals, such as protecting some savings from inflation’s effects or earmarking a fixed sum for a large purchase within five years, such as a car or house.

Don’t forget about specialty CDs. If you’re unsure about getting a CD now, some types of CDs offer flexibility. Bump-up CDs allow you to increase the rate at least once during a CD term, as long as rates on new CDs go up. No-penalty CDs give you a fixed rate plus the opportunity to jump ship for free.

Consider a CD ladder to hedge your bets. A CD ladder strategy reduces the stress around timing your CDs. Split up an investment equally into several CDs of different term lengths, such as one year, two years and three years. When each CD matures, reinvest in a longer-term CD or, if you need the cash, withdraw. Ideally, though, you can have multiple long-term CDs that mature at staggered intervals. You mix short-term CD access with long-term rates.