To combat inflation, the Federal Reserve has continued to raise interest rates throughout 2022 and into this year. As interest rates continue to rise due to these Fed hikes, so do rates on savings accounts and CDs. The last Fed hike raised interest rates by 0.25%, bringing rates from 4.50% to 4.75%. The Federal Funds rate is predicted to reach 5 to 5.25% in 2023, which is good news for those looking to open a CD — rates should continue to climb. 

Yields on CDs are expected to peak this year before leveling off. According to Bankrate, by the end of 2023, the national average for one-year CDs is estimated to increase to 1.8% up from 1.38% at the end of 2022. Further, the national average for five-year CDs will reach 1.5% by the end of this year, with some of the highest-yielding accounts offering rates of 4.1%. 

And, if you research your options and shop around, you'll find that some one-year CDs are already offering APY rates of over 5%. Often, in order to get the top rates on CDs you'll need to forgo your brick-and-mortar bank and instead opt for an online "challenger" bank. And sometimes, but not always, you may need a higher deposit ($1,000 minimum) to access these best CD rates. 

What is a CD?

A certificate of deposit, or CD, is a type of savings account that holds a fixed amount of money for a fixed period of time. Interest rates on CDs are typically higher than they are for regular savings accounts, and the rate that you sign up for stays the same rate for the whole term. Meaning, if rates drop for new CDs, you’ll still keep your rate. Keep in mind that if you decide to withdraw before the term is up, you’ll be stuck with pretty hefty exit fees that can offset any interest you've already earned.

CDs are good options when saving for a specific goal, but they're not great for savings that you’ll need immediate access to — so it's best to avoid putting your emergency fund in a CD. Typical term lengths for CDs range anywhere from three months to five years.

Determining what CD term you should plump for is easier if the money is going towards a particular savings goal. For example, if you plan on buying a house in three years, then opening a three-year CD makes sense. 

However, you may be looking to open a CD with no particular savings goal in mind, so you’ll have to decide whether to get a short-term or long-term CD. To do so, you should consider interest rates, early withdrawal penalties and the amount of time you’re willing to commit. Typically, longer-term CDs have higher interest rates than short-term CDs, but you’ll have to wait longer to access those funds or risk incurring a fee.

Why open a CD

CDs are a great option if you’re looking for a guaranteed rate of return on your savings. They’re geared toward earning interest on money that’s already been saved, often for a future purchase, like a down payment on a vehicle or home. With a CD, you’re making an up-front payment, rather than contributing monthly, so it's not a useful tool for those looking to save gradually. Therefore, if you’re planning to make continuous deposits into a savings account, a traditional or high-yield savings account would be a better option for you. 

Pros of CDs

  • Safe, no-risk, investments
  • There's a guaranteed rate of return 
  • Offer higher interest rates on deposits than traditional savings accounts 
  • Usually have no monthly fees

Cons of CDs

  • Money cannot be easily accessed, without facing early withdrawal penalties. 
  • You’ll pay taxes on interest accumulated in the CD. 
  • Fixed interest rates on CDs mean that if rates rise, you won’t be able to take advantage of these higher interest rates. 
  • Lower returns than if investing in stocks or mutual funds (but always remember the value of your investment can go down as well as up).

This article was written by Erin Bendig from Kiplinger and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to

The opinions expressed within this article is that of Erin Bendig and not that of M&T Bank, nor does M&T Bank endorse the opinions.

This article is not intended to provide tax, legal, accounting, financial, or other professional advice. Always consult a qualified professional about your personal situation.