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May 29, 2024

CD Rates Hit 6-Year Highs in January 2024

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Jan 8, 2024

Interest rates on certificates of deposit (CDs) have climbed to their highest levels since 2018, according to data from Bankrate. As the Federal Reserve continues raising interest rates to fight inflation, savers are seeing a boom in returns on these fixed-rate savings accounts.

CD Rates Now Exceed 6% for Some Terms

The average CD rate has now surpassed 6% for 5-year CDs according to the latest data from January 8th, 2024. One online bank is even offering a 6.5% APY on a 5-year CD special. While the average 1-year and 3-year CD rates are slightly lower at 5.55% and 5.75% respectively, these still represent substantial increases from one year ago.

Average CD Rates as of January 8, 2024

| CD Term | Average Rate | 
| ------------- |:-------------:|
| 1-year      | 5.55% |
| 3-year      | 5.75%     |  
| 5-year | 6.05%      |

These high yields make CDs competitive with other fixed-income investments like bonds for the first time in years. With one top 5-year CD paying over 50% more in interest than the 5-year Treasury note, CDs may be alluring for investors seeking safe returns.

Savers Flock to Lock In High Rates

With CD rates hitting multi-year peaks, now could be an opportune time for savers to lock into a high yield. Many expect the Federal Reserve to stop raising rates at some point in 2024 if inflation continues to cool. When this happens, CD rates could also decline from their highs.

Financial experts recommend CD laddering, where you open multiple CDs with staggered maturity dates. This allows you to take advantage of high rates now while keeping money available later to reinvest if rates fall.

Some savers are even shifting funds from high-yield savings to top out 5-year CD rates above 6%. While liquid savings still serve an emergency fund purpose, the over 1% rate premium on CDs has made locking up funds more enticing.

Banks Compete for Deposits with Special Deals

Banks have also begun offering CD specials and bonuses to attract more deposits. These limited-time rate bumps and cash bonuses have added to the appeal of locking into a multi-year CD for some customers.

Top national banks are currently advertising 5-year CD specials with rates up to 6.15% APY and $500+ cash bonuses. Smaller community banks and credit unions have also followed suit with special offers aiming to lure local depositors.

This increase in competition has created opportunities for savvy savers in early 2024. Shopping around between banks using tools like Bankrate’s CD rate comparison can help lock into the highest special deals.

How High Can Rates Go in 2024?

The big question facing savers now is – have CD rates peaked or do they have more room to rise in 2024? Most analysts believe we are getting close to the end of the rate hike cycle from the Fed after nearly a year of steady 0.5% increases at each meeting.

If inflation data continues trending downwards in early 2024, the Fed could pause rate hikes as early as March. This could in turn mark the peak for savings rates as banks won’t need to pay increasingly higher yields to attract deposits.

However, some economists think stubborn inflation readings could force the Fed’s hand into more aggressive 1.0% hikes. If this happens, CD rates could shoot even higher over the next several months before topping out. This upside scenario means locking a long-term rate now still brings certainty against fluctuating rates.

Outlook for Savers in Late 2024 and Beyond

Once rates peak, many expect CD yields to hold at elevated levels for most of 2024 before declining in 2025 or 2026. As banks look to retain deposits in higher rate environments, they are slower to drop CD rates afterwards.

Given strong consumer savings through the pandemic, banks also have ample liquidity currently. This means competitive pressure on deposit rates could persist even beyond 2024.

In summary, while no one knows exactly how high CD rates will go or when they will peak, right now likely represents an extraordinary opportunity for savers. Locking into a special 5-year CD above 6% ensures you secure a rate over 3X the pre-pandemic normal for years to come. Stay alert for new rate hike cycles in the future as well when rising rates could push CD yields upwards again.

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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