While 2023 has been an economically challenging one for scores of borrowers, it’s also been a remarkably rewarding one for savers. While higher interest rates have caused the cost of borrowing — from mortgages to credit cards — to skyrocket, they’ve also led to substantive returns on traditional savings vehicles. 

Just look to the recent past to compare. Certificate of deposit (CD) and high-yield savings accounts earned around 1% or less in 2020 and 2021. But in 2023, it wasn’t difficult to find an account with a 5.5% APY, often with little or no fees. That said, with inflation cooling and the overall forecast for 2024 unclear, many may be wondering if CD rates will rise even higher in 2024. Or is the window of opportunity to earn today’s high rates closing? A couple of factors in play could determine the answers to these questions.

Lock in a high CD rate here now before they start dropping.

Will CD rates go higher in 2024?

Not only is it unlikely that CD rates will increase in 2024, but it’s actually more realistic to expect them to drop. What ultimately happens, however, will largely be determined by the following factors:

Inflation

Inflation has led to pain for millions of American consumers. And while it’s down from the decades-high level it was at in June 2022, it’s still a bit off from the Federal Reserve’s 2% target goal (a report for October had it at 3.2%). So, until inflation gets in line with where the Fed wants it to be, expect the benchmark interest rate range to remain higher than usual.

What does this mean for CDs? Since CD rates mirror the Fed’s activity, they’re likely to remain elevated while the benchmark rate is elevated. As that levels off and then drops, CD rates will follow. That’s why now is a great time to lock in a long-term CD rate. The APYs on these accounts are high but are unlikely to remain that way for very long. By opening an account and locking in a rate today, you’ll earn at that higher rate regardless of what happens to the overall rate environment in 2024.

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Treasury yield changes

This is, essentially, the interest rate that the federal government has to pay for the money it borrows. Banks then use the money account holders have deposited for their investments in Treasuries. If this treasury yield heads upward, the APY banks give on their CDs can head upward too. At the same time, if treasury yields drop in 2024, don’t be surprised to see the rates on CDs fall with them.

Bank needs

Some banks, particularly new, online ones, may need to build up their capital quickly. One great way to do so is by offering account holders attractive APYs to put their money into a CD — and leave it there. This is often why you find that newer, online banks come with higher interest rates than more established lenders with physical locations. Plus, online banks tend to have fewer overhead costs than their counterparts with brick-and-mortar locations, thus allowing them to pass on those savings to customers in the form of greater interest rates.

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The bottom line

As the past few years have demonstrated, it’s difficult to predict what could happen to the economy. No one could have foreseen the pandemic in 2020 and the ultimate economic ramifications that caused, including record-low borrowing rates. It’s possible that other, unknown factors could affect the economy in 2024. If that happens, rates on CD accounts could rise or fall accordingly. 

That said, CD rates will typically be affected by the state of inflation, the benchmark interest rate range, Treasury yields and the business needs of the bank in question. While the combination of these factors has led to elevated rates in 2023, the predictions for next year aren’t clear, underlining the importance of opening an account now while rates are still high.