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Inflation continues relatively high at 3.4%, higher than the Federal Reserve’s target interest rate. To achieve its goal of lower inflation, the Fed opted to keep federal funds flowing at the same pace at last month’s meeting. As a result, interest rates on lending products such as auto loans and home loans will remain high – at least until the Fed’s next meeting.
However, the ongoing interest rate pause has since been good news for savers high-yield savings and certificates of deposit (CD) Interest rates will likely remain high for the time being. In fact, some of the best cd accounts currently have an interest rate of more than 5%. But that may change over time. What exactly will happen to CD rates this summer?
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What will happen to the CD rates in the summer of 2024?
Here’s what some experts think could happen CD rates this summer.
CD rates may remain the same
When the Federal Open Market Committee (FOMC) met earlier this month, the Federal Reserve voted to leave the federal funds rate unchanged. As a result of this decision, CD rates could remain flat this summer, some experts say.
“Short-term rates are likely to remain flat or decline slightly if the Fed cuts rates later this year,” said Noah Damsky, CFA, principal at Marina Wealth Advisor. “The likelihood of higher CD rates is the least likely outcome.”
Chris Diodato, CFA and CFP and founder of WELLth Financial Planning, also believes CD rates will remain the same this summer.
“Federal Reserve officials have noted that progress in reducing inflation has stalled in 2024,” Diodato said. “Wage inflation is too high and we are starting to see inflation in commodities like copper and aluminum.”
Because of these factors, Diodato expects interest rates to remain the same through at least the third quarter of this year.
Find out how you can reach your savings goals now by opening a CD.
CD rates may drop
Most experts we spoke to agree that CD rates are likely to drop this summer, but that’s only the case when the Fed lowers interest rates.
“If the Fed cuts the Fed rate (which they directly control), it could cause CD rates to fall below five years for virtually any term,” Diodato says.
However, he believes it is more difficult to predict the direction of CDs with maturities longer than five years.
“Longer-term CDs are affected by changes in interest rates, but are also determined by factors such as long-term inflation and economic growth expectations, over which the Fed has no direct control,” Diodato says.
“The Fed could cut rates in the fall,” said Angela Dorsey, a certified financial planner and founder of Dorsey Wealth Management. If that happens, Dorsey thinks CD rates will drop.
The benefits of opening a CD now
The main benefit of opening a CD now is that you get a good CD interest rate for up to one year or longer.
“If someone waits until rates rise to buy a CD, they may miss out on today’s relatively high rates. I would encourage them to buy now and lock in the current price by purchasing a six or twelve CD months to buy,” says Dorsey.
Brian Seymour, II, a certified financial planner, ChFC, and founder of Prosperitage Wealth, has similar thoughts.
“I would remind anyone looking at current CD rates of the sub-1% rates we’ve seen over the last decade,” says Seymour. “Setting a guaranteed interest rate above 5% can provide investors with returns and peace of mind that may not be available for much longer.”
it comes down to
Right now, CD rates are high – and some financial institutions are offering rates as high as 5.30%. But before you open one, consider alternative banking products and the likelihood that you will need to get the money before the term expires to avoid early withdrawal penalties.
“With the rates of CDs and high-yield savings accounts (HYSAs) being so similar, a HYSA should be considered as an alternative to locking up your money for an extended period of time,” says Seymour.
If you decide to purchase a CD, select a CD term that suits your financial situation. For example, if you plan to pay your child’s freshman college tuition in two years, consider purchasing a two-year CD.
