Savers have benefited from investing in a certificate of deposit (CD) over the past couple of years. Many CDs currently pay 5% yields, making them a fantastic place to store money with a near-guaranteed return.
However, the Federal Reserve estimates it'll cut the federal funds rate once later this year and make multiple cuts next year, which could dramatically lower CD yields.
Here's how rate cuts could affect CDs and what to do about it.
How a rate cut could affect CD rates
The good news is that if you have money in a CD, a Fed rate cut won't impact your current CD rate. CD rates are fixed for your entire term.
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Capital One 360 Performance Savings 
APY 4.25% Rate infoSee Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY)is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. Open Account for Capital One 360 Performance Savings Member FDIC. | APY 4.25% Rate infoSee Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY)is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. | Min. to earn $0 |
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For example, if you open a 5% CD with a 2-year term tomorrow, you're nearly guaranteed to earn that interest rate on the amount you've deposited. The only way you wouldn't earn the 5% rate is if you take your money out early. In that case, you may pay a penalty fee of 90 days to 180 days of simple interest, reducing your CD interest rate.
But if the Fed cuts interest rates soon, yields for new CDs will likely fall. Policymakers estimate they could make one 25 basis point (0.25%) rate cut this year, potentially pushing CD rates down by as much by the end of 2024.
And with four potential cuts next year, CD rates could drop by a total of 1.25 percentage points by the end of 2025. This means 5% CD rates could soon be a thing of the past, replaced by rates no higher than 3.75%.
What you should do now
Depending on your financial needs, there are two steps to consider before interest rates fall. Here are a few suggestions.
1. Do nothing
This is the best approach if you currently have money in a CD. There's nothing you need to change, and there is no decision to be made if the Fed cuts interest rates. Leave your money in the account, and you'll earn the guaranteed rate you were promised when you opened it.
2. Open a new CD before rates go down
If you want to earn a nearly risk-free 5% yield on your money, it might pay to open a CD soon. There could be multiple rate cuts before the end of next year.
This means that 5% CD rates could disappear. So, if you have money you really want to put into a CD, now is the time to do it.
There's nothing wrong with waiting a little longer to put your money into a CD. Just know that you'll probably get a lower rate than what's currently available.
Don't forget this
While many CDs offer high yields, they aren't great places to store cash you might need soon.
You have to commit your money to being locked up for a period or pay a penalty to take it out early. Some no-penalty CDs exist, but they usually pay lower interest rates and can be harder to find.
Before opening the CD, ensure you don't need the cash for upcoming purchases or emergencies. If you think you'll need it, put it into a high-yield savings account for easy access.
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FAQs
CD Rates Forecast 2024
The CME FedWatch Tool, which measures market expectations for federal funds rate changes, shows that most experts expect rates to sit between 4.50% and 5.25% by December 2024.
Where will CD rates be in 2025? ›
So if the Fed lowers its benchmark rate by 25 basis points, CD rates aren't guaranteed to fall from 5% to 4.75%. But all told, it's pretty fair to assume that there will still be opportunities to lock in a CD at close to 5% at the start of 2025.
What is the interest rate forecast for 2024? ›
Mortgage rates are expected to go down in the second half 2024. Depending on which forecast you look at for housing market predictions in 2024, 30-year mortgage rates could end up between 6.5% and 7% by the end of the year.
What happens to CD rates when the Fed raises rates? ›
Fed rate increases mean higher CD rates
Rising CD rates might make CDs an option to consider if your current savings account rates are near 0% and not helping to fight inflation in any sense.
Can you get 6% on a CD? ›
You can find 6% CD rates at a few financial institutions, but chances are those rates are only available on CDs with maturities of 12 months or less. Financial institutions offer high rates to compete for business, but they don't want to pay customers ultra-high rates over many years.
Should I lock in a CD now or wait? ›
Unlike traditional or high-yield savings accounts, which have variable APYs, most CDs lock your money into a fixed interest rate the day you open the account. That's why if you suspect that interest rates will soon drop, it can be a good idea to put money in a CD to preserve the high APY you would earn.
What is the best CD rate for $100,000? ›
Best Jumbo CD Rates for July 2024
| BEST NATIONAL JUMBO CDs | | |
|---|
| CD Bank | 5.20% APY | $100,000 |
| Luana Savings Bank | 4.42% APY | $100,000 |
| All In Credit Union | 4.13% APY | $100,000 |
| Best non-Jumbo option: TotalDirectBank | 5.51% APY | $25,000 |
46 more rowsWhy Trust Us? As of June 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.
What will CD rates be in 2027? ›
The Top CDs for Locking Your Rate Until 2025 to 2027
| Best 1-Year CDs - Mature Early 2025 | APY | Minimum |
|---|
| Best 3-Year CDs - Mature 2027 | Rate | Minimum |
| Lafayette Federal Credit Union | 5.10% | $ 500 |
| EFCU Financial | 5.00% | $ 500 |
| DollarSavingsDirect | 5.00% | $ 1,000 |
20 more rowsFeb 28, 2024
On June 12, 2024, the US Federal Reserve released the June 2024 Fed dot plot, which showed a projected 2.25-point interest rate cut by yearend 2026. This would reduce the fed funds target rate range from 5.25%-5.50% today to 3.00%-3.25%.
Although you likely won't see the low rates buyers enjoyed during the pandemic, mortgage rates are still expected to dip in 2025. There's no surefire way to know how much of a drop to expect, but experts predict they could reach 6%.
Will credit card interest rates go down in 2024? ›
While the Fed maintained its target rate in the 5.25 percent to 5.50 percent range at its June 2024 meeting, the central bank hasn't yet declared victory in its fight against inflation. However, it seems the Fed is done raising its target rate in this cycle and forecasts one rate reduction later in 2024.
What will CD rates do in 2024? ›
Key takeaways. The national average rate for one-year CD rates will be at 1.15 percent APY by the end of 2024, McBride forecasts, while predicting top-yielding one-year CDs to pay a significantly higher rate of 4.25 percent APY at that time.
Is it worth putting money in a CD right now? ›
If you don't need access to your money right away, a CD might be a good savings tool for you in 2024 while average interest rates remain high. CD interest rates are high in 2024 — higher nationally, on average, than they've been in more than a decade, according to Forbes Advisor.
How long will CD rates stay high? ›
Many 1-year, 3-year and 5-year CDs are offering rates between 5% and 6%, according to DepositAccounts. Because Wall Street investors tend to predict the Fed won't start cutting rates until the second half of 2024, CDs rates are likely to stay at their elevated levels for much of the year.
What is the interest rate forecast for the next 5 years? ›
The median projection for the benchmark federal funds rate is 5.1% by the end of 2024, implying just over one quarter-point cut. Through 2025, the FOMC now expects five total cuts, down from six in March, which would leave the federal funds rate at 4.1% by the end of next year.
What will interest be in 2026? ›
The median estimate for the fed-funds rate target range at the end of 2025 moved to 3.75% to 4%, from 3.5% to 3.75% in December. For the end of 2026, the median dot now shows a target range of 3% to 3.25%, versus 2.75% to 3% three months ago.
