CD rates are dropping. Here's where to find the highest payouts

Published Tue, Dec 19 20231:59 PM ESTUpdated Tue, Dec 19 20232:18 PM EST

The average rate banks are paying for certificates of deposit went down for the first time this cycle, according to Morgan Stanley. During the first two weeks of December, the average highest rate paid decreased 3 basis points to 5.09%, the firm said in a note Monday. While three banks increased rates, they were offset by cuts at six institutions, analyst Manan Gosalia said. "Rates on longer-dated CD offers (13-36 months) fell by 12 bps versus 1 bp for shorter-dated offers (1-12 months) as banks continued to position for potential rate cuts in 2024," Gosalia wrote. The average rate paid for CDs with maturities between 13 months and 36 months is now 3.73%, while the average one-to-12 month rate sits at 4.91%, Gosalia said. Online banks, which tend to have higher yields, have an average highest CD rate of 5.27%, a 6 basis point drop, the analysis found. Yields have climbed since the Federal Reserve started its rate hiking campaign in 2022 to combat inflation. Now, with the central bank indicating three rate cuts coming in 2024, the annual percentage yields paid on short-term instruments such as CDs, money market funds and online savings accounts are expected to follow suit. Therefore, it may be a good time to lock in juicy yields while you still can. Right now, Citi is offering the highest APR on CDs with durations of three years or less, according to Morgan Stanley. Bank OZK and Valley National Bank are close behind, although Valley National's CD rate is variable, Gosalia said. To compile its list of CD rates, Morgan Stanley looked at the bank's advertised rates online or, in most cases, reached out to a branch located in the state in which the company is headquartered, since rates significantly can vary across regions. Here are the top 10 CD rates with maturities less than or equal to three years, per Morgan Stanley. Fifth Third Bancorp was at the bottom of the list with its 4.5% APR on a 13-month CD, while U.S. Bancorp is offering 4.6% on a 13-month CD. — CNBC's Michael Bloom contributed reporting.