CD Rate Predictions: When to Lock In for the Long Term, According to Experts

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Certificate of deposit (CD) rates are on a steady climb, driving a renewed interest among savers.

In an effort to lower record inflation, interest rates have quickly increased from pandemic-era lows over the past few months. The Federal Reserve just announced its fourth interest rate increase this yearhad its largest rate increase in decades in June (to a target 2.25% – 2.50%), and may roll out more rate hikes in the near future.

In response, CD rates now range from 1.90% up to 2.50% for a 1-year CD. 

If you’re prioritizing saving right now, rising rates could mean a better return on your savings — including from CDs. And with more Fed rate increases expected, we asked experts what they expect from CD rates next and their recommendations for today’s savers:

What to Expect from CD Rates Through 2022

After the Fed’s latest rate increase in July, experts say increases may continue in months to come. 

Ayesha Selden
Ayesha Selden

“We’ll probably see [rates] go up a little bit further between now and year end,” says Ayesha Selden, a certified financial planner and franchise owner of Ameriprise Financial Services Inc. in Philadelphia. “It benefits us on the side of CDs and savings accounts.” However, she also notes the downside for borrowers: “It is to our disadvantage for carrying balances on credit cards and balances on home equity lines of credit, where rates are variable.” 

Sweta Bhargav
Sweta Bhargav

As a result of rising federal rates, banks are also likely to continue to increase CD rates (which are not directly tied to, but based on, the federal funds rate).

“If rates do increase, then I see CD rates increasing as well,” says Sweta Bhargav, a certified financial planner and principal financial advisor for Adviso Wealth, a financial planning and investment firm in Philadelphia. “We’ve seen a big difference [in interest rates] from January to now.” 

Mantas Tautkus
Mantas Tautkus

But just because rates are predicted to rise doesn’t mean they’ll stay there for long, says Mantas Tautkus, a certified financial planner for MT Financial Planning in Lake Barrington, Illinois. After all, the Fed’s intention with rate hikes is to bring inflation down. “Eventually, they will be successful in taming inflation,” Tautkus says. “By doing so, they will probably lower the rates to stimulate growth again.”

Cory Moore
Cory Moore

Ultimately, savers should prepare for changing tides. Once inflation plateaus or decreases, rates could begin shifting in the other direction. 

“If we’ve already hit a point where [the Fed] feels like we should take a pause, we may see things level off a bit,” says Cory Moore, certified financial planner and founder of Moore Financial Planning.

What to Know Before Opening a CD Right Now 

In an economic environment with rapidly increasing rates, locking in even a competitive long-term CD rate today could mean missing out on a better APY as rates climb. 

“Typically, I don’t believe I’ve ever gone past two years, regardless of what the market situation is,” says Tautkus. 

Still, choosing the longest CD term that works with your goals can help you maximize interest earnings. For instance, if you know you won’t need the cash for a year, consider a 1-year CD to guarantee a better return compared to one that has a shorter term and a lower rate. For longer-term goals, a CD ladder can help you maximize interest while maintaining liquidity. 

“The flexibility is one of the best things about a CD ladder. You have the option, when that CD matures, to think about what you want to do then or even reinvest back into a CD,” says Bhargav. 

But even with a CD ladder, experts recommend keeping the length of any CD to less than two or three years right now. You can reassess your financial goals and the current rate environment as the CDs on your ladder mature and decide whether you should invest the money, put it toward a new goal, or create another CD ladder depending on rates, Moore says. 

Other Savings Options to Consider 

Even though CD rates are rising, there are better ways to invest your money for a better return, says Nia Gillett, a paraplanner for Gen Y Planning, a financial planning firm. Depending on your financial goals, these options may offer a better return or more flexibility compared to CDs, even as rates climb. 

I Bonds

Right now, Series I Savings Bonds have an APY of 9.62%, which is much higher than what CDs are paying, and they’re backed by the U.S. government, Gillett says. 

But it’s important to remember: I Bond rates follow inflation, and the Fed’s rate hikes are designed to lower today’s runaway inflation rate. Which means variable I Bond rates may be less appealing as federal interest rates rise.

Nia Gillett
Nia Gillett

Keep in mind that you must hold the I Bond for a year and you can only purchase up to $10,000 in I Bonds per Social Security number each year. You can hold the bond for thirty years, and if you withdraw before five years after opening, you’ll pay a fee worth three months of interest. 

The variable interest rates on I Bonds change every six months. “There’s always the chance that I Bonds are paying less in interest than CDs at some point,” says Gillett. “You can always make the switch if that were to occur and cash out your I bonds and put them into CDs.”  

High-Yield Savings and Money Market Accounts

When it comes to interest rates, CDs fall in between I Bonds and more flexible money market accounts right now, Moore says, as well as high-yield savings accounts. With today’s rates, you can earn up to 2% APY on your savings. 

These accounts have variable interest rates that rise alongside CD rates, but your balance is not locked in the account for any set term. For short-term savings and emergency funds, these are the most liquid account options that still allow you to earn a competitive interest rate on your balance.

Bottom Line 

Before you decide on a CD based on today’s rates, it’s smart to weigh the pros and cons of each savings option based on your financial goals. While CDs can offer a return over time, you may benefit more from an account with more liquidity or choose an investment with a higher potential interest rate. As interest rates rise, consider how today’s environment might differ in a few months or a year. 

Over time, it’s also worth re-evaluating your plan to make sure it works for you. “Go out and look for the best deals in each [savings] category,” says Tautkus. Each year he recommends evaluating your savings strategy and compare rates to see if you can earn a better return.