Savers find a silver lining during banks’ tumult — Rates on CDs are going up, Morgan Stanley says

Published Thu, Mar 16 20233:01 PM EDT

Banking sector woes aside, it's looking like a good time for investors who are in the market for a certificate of deposit. That's because banks are boosting the rates they're paying on CDs, according to a Thursday report from Morgan Stanley. The average highest rate banks paid on a CD rose by eight basis points to 4.08% over the first two weeks of March, according to Morgan Stanley analyst Betsy Graseck. Investors are also scooping up a little more return for short-term CDs, as the average 1-month to 12-month rate grew by 12 basis points to 3.50% in the past two weeks, she found. These enticing yields on CDs are a positive side effect of today's higher interest rate environment, now that the Federal Reserve has hiked rates eight times over the past year. Over the span, Treasury yields have ticked up, making even short-term government securities an attractive place to stash cash: a one-year Treasury bill yields 4.48%, and 3-month T-bills offer 4.72%. "Banks will increasingly need to compete with Treasuries and money market funds in order to attract deposits," said Graseck. "This should push deposit rates higher even after the Fed pauses." At a time when deposit flight is a stressor for some banks, it's worth noting that CDs also tend to be sticky assets. That's because investors are penalized for "breaking" them ahead of maturity, meaning they forfeit some interest, depending on the term of the CD. Look to online banks for some of the highest rates. Ally Bank and Synchrony Financial, for instance, are offering 5% on CDs going beyond 36 months, according to Morgan Stanley. Capital One Financial pays 5% on 1-month to 12-month CDs. See below for Morgan Stanley's list of top short-term CD rates as of March 15. With bank stability on the top of investors' minds, be aware that bank CDs are covered by the Federal Deposit Insurance Co . Bank deposits are insured up to $250,000 per depositor, per FDIC-insured bank, per ownership category — including CDs. - CNBC's Michael Bloom contributed to this report.