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What will happen to short-term CD rates in 2025? Experts weigh in

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Short-term CD rates could fall if additional interest rate cuts are issued in 2025. Getty Images

Interest rates on high-yield savings accounts and certificates of deposit (CDs) have dipped in recent months, thanks in large part to three federal funds rate cuts by the Federal Reserve to close out 2024. Before the cuts, CD account holders commonly earned yields around 5% or higher, but the top rates now range from 4% to the mid-4% range.

The Fed's rate cuts have had a noticeable effect on deposit accounts, especially short-term CDs (with terms maturing in 12 months or less). Many banks and credit unions have responded to the lower federal funds rate by lowering their rates on deposit accounts, including those for short-term CDs. At the same time, many savers are opting for long-term CDs to lock in rates or exploring alternatives like high-yield savings accounts.

The evolving rate environment raises some important questions about the future of short-term CD rates. Namely, could short-term CD rates rise, fall, or remain steady? According to the experts we spoke to, much will depend on how the Federal Reserve adjusts its monetary policy in 2025, as well as other factors. Below, we'll break down what to know now.

See what short-term CD rate you could lock in here now.

What will happen to short-term CD rates in 2025?

Here are three things that could happen to short-term CD rates this year - and why:

Short-term CD rates could fall in 2025

At its most recent meeting in December, the Federal Open Market Committee (FOMC) indicated it anticipates lowering interest rates in 2025, although when that could occur was unclear. Still, if that happens, CD rates could follow suit and decline.

"As CD rates are correlated with the Treasury yield curve, where the short end of the curve is more heavily influenced by the federal funds rate," says Dwayne Safer, an associate professor of finance at Messiah University in Mechanicsburg, Pennsylvania. "Short-term CD rates could fall if the Fed continues along its path of rate cuts. The market is anticipating between one to two 25 basis point cuts in 2025, with recent stickiness in inflation data causing some to believe the Fed will only cut once in 2025."

If rates do drop, you might consider opening a short-term CD now to take advantage of the current rates.

Get started with a short-term CD here today.

Short-term CD rates could rise in 2025

As stubborn inflation continues to strain Americans' budgets, many analysts and rate watchers believe it will be difficult for the Fed to cut rates significantly in 2025. According to the Bureau of Labor Statistics (BLS), prices rose 2.9% annually in December 2024, up slightly from 2.7% in November. If inflation rises further, the Fed may have no choice but to raise the federal funds rate to bring it under control.

"Short-term CD rates might rise this year if the Federal Reserve reverses course and begins to raise interest rates to fight inflation," says Andrew Herzog, CFP at The Watchman Group in Plano, Texas. 

However, Herzog points out that monetary policy may not be the only factor driving higher short-term CD rates. "Regional bank CD rates could rise if they're trying to entice consumers to deposit money with them rather than buying Treasuries or money markets."

Short-term CD rates could stay the same in 2025

"Short-term CD rates could stay the same in 2025 if our current economic environment remains unchanged," explains Cathleen Tobin, a CFP and financial planner at MoonBridge Financial Design in Rhinebeck, New York. "If it looks like the Fed will continue to wait to cut its benchmark rate, or inflation remains about where it is today, those things could lead banks to keep their short-term CD rates unchanged."

With the economy continuing to stabilize, rates may remain unchanged for the foreseeable future. In December, the Fed indicated it will monitor inflation, employment and other data before making any major changes to interest rates.

Inflation inched up in December but has remained relatively stable since last summer. Meanwhile, the latest BLS reports 256,000 new jobs in December while maintaining the unemployment rate at 4.1%. The rate has fluctuated negligibly between 4.1% and 4.2% over the past several months. 

The bottom line

When deciding where to place your money in 2025, consider whether you're more comfortable locking in a rate now or waiting to see how things play out. If you anticipate CD rates will drop later this year, locking in a rate now might be a smart move. Top CD accounts still offer rates in the 4% to 4.5% range. The CD term you choose should align with when you'll need the money so you can avoid paying an early withdrawal penalty if you have to take it out sooner than planned.

On the other hand, if you believe rates could rise, you might want to hold off or park your money in a high-yield savings account for now. This account type could offer you competitive returns without tying up your funds.

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