Want to Lock in High Interest Rates on Your Savings? You May Not Have Much Time

Over the last year, the best CD rates have hit highs we haven't seen in over two decades. But if you're counting on those rates staying the same in 2023, you might be setting yourself up for disappointment.

Like a school of fish, CD rates typically move in tandem with the Federal Reserve's fund rate. When the fund rate goes up, CD rates aren't far behind. But CD rates can move even when the federal fund rate stays the same. This might happen when banks expect the Federal Reserve to make a critical rate decision in the near future. And with many expecting the Federal Reserve to start lowering rates in mid-2024, it's no surprise that short-term CD rates (like those under 12 months) have already started to decline.

Why now is the best time to get a short-term CD

To understand why now is a good time to lock into a certificate of deposit (CD), let's take a look at 3-month CD data from the Organization for Economic Co-operation and Development. Pay attention to September, as that was the month CD rates appear to have peaked.

For three consecutive months to close out 2023, CD rates dropped. What's more, the rate at which CD rates have declined has also accelerated, as seen by the month-to-month changes from October to December. While the 90-day CD rate is still high compared to January 2022 (when it was 0.22%), it's also dropped below the 5.35% rate in July 2023.

This doesn't mean you won't find a 3-month CD with a rate above 5.32%. On the contrary, Western Alliance Bank currently has one paying out at a 5.51% APY via the financial platform Raisin. What this may indicate, however, is that these lucrative CD offers are likely going to be fewer and fewer, especially if the central bank makes a critical decision to drop its fund rate at its next meeting.

The best CD rates may not be here much longer

Of course, CDs aren't right for everyone. If you don't have savings to invest with -- like money earmarked for emergency savings or other purposes -- you're probably better off opening a high-yield savings account. But for those who have been contemplating opening a CD, you're likely not going to find better CD rates than what's on the market today.

I'd recommend looking at our list of best CDs for various terms, such as 6-month CDs, to get an idea of what's out there. You could also look at the Raisin marketplace for lucrative deals on high yield and no-penalty CDs. Wherever you shop for one (or several, via a CD ladder), don't hesitate to lock into today's rates -- they might not be the same the next time you look.