Alisa Wolfson
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You’ve likely seen plenty of high-paying CDs this year (some offer APYs of 5% or more, and you can see some of the higher paying CDs here ). But last month the Federal Reserve signaled that, after holding rates steady following five consecutive meetings, interest rates will be on the chopping block, with three cuts planned by the end of 2024. So how will this impact CDs?
It already has, a bit: After hitting decade-long highs, CD rates have slowly started to peter out in anticipation of the Fed cutting interest rates. Specifically, Bryan Johnson, chartered financial analyst at certificate of deposit marketplace CDValet.com says the downward trend is already in motion. “In November 2023, there were over 3,900 CDs available with rates of 5% or greater. In the third week of March, that number was under 3,000,” says Johnson.
In other words, though there are still plenty of high offers, there are, in general, fewer of them, as CD rates have been slowly declining thus far in 2024. “And that will likely continue in April,” says Ken Tumin, senior industry analyst at LendingTree.
Greg McBride, chief financial analyst at Bankrate, concurs. “CD yields will continue to move lower in April and the pace will eventually pick up as the timetable for Fed interest rate cuts becomes clearer,” says McBride.
Others say that rates may hold pretty steady in April, though they will go lower in 2024. “CD rates are closely tied to the Federal Funds rates. Based on the fact that the Federal Reserve agreed to hold any rate increase or decrease at this March meeting and indicated that they are still expecting three rate decreases this year, I would expect rates to hold constant for April and start drifting lower as it gets closer to the election,” says James Mohs, associate professor of accounting and taxation at University of New Haven.
Still, looming rate cuts aren’t the only thing that will impact CDs. McBride says, “the biggest impact on the direction of CDs will continue to be inflation, bond yields and the expectations for Fed interest rate cuts.”
What do this all mean for consumers looking for a CD now?
Since those impending rate cuts haven’t actually happened yet, it’s possible you might get a higher rate today than you will after the Fed’s May meeting, pros say. “Consumers can still take advantage of relatively high CD rates in April before the next Fed meeting in May. It’s unlikely rates will go any higher unless inflation unexpectedly pivots,” says NerdWallet investing spokesperson Elizabeth Ayoola. ( See some of the higher paying CDs here. )
This begs the question about whether it’s best to buy a CD now or wait. “With tax season upon us, if you’ve got excess cash from your return, grab a CD, even an IRA CD for those looking to maximize your retirement. It’s best to open a CD sooner than later, now that the Feds have forecasted three rate drops in the coming year. CD rates remain very attractive, offering one of the only ways of locking in market-rate returns with minimal risk to principal,” says Johnson.
Keep in mind, too, that short-term CD rates continue to be much higher than long-term CD rates. “It’s an inverted yield curve situation. The highest rates are CDs with maturities of 18 months and under. This can make shorter-maturity CD ladders more appealing than those with longer maturities,” says Tumin.
As with any financial decision, it’s important to consider your short- and long-term goals. “Since rates are still relatively high, it may be ideal to buy CDs and lock in the higher rates before they begin to fall whenever rate cuts commence. Since CDs offer a fixed rate, even when rates fall, consumers can still benefit from the higher rate they locked in,” says Ayoola.
That CD, if you’re going to need easy access to your money, a CD likely isn’t the right move for you, as withdrawing early typically means you pay a penalty. And buying a CD, experts recommend shopping around to get the best return on your money. “There continues to be a wide disparity in what is being offered among various banks and credit unions. The most competitive offers enable you to lock in returns that are ahead of inflation, all while being federally insured,” says McBride. ( See some of the higher paying CDs here. )
