Have short-term CD rates peaked? Here's what experts say
Thanks to inflation and the Federal Reserve's moves against it, interest rates are high. For consumers with savings and certificate of deposit accounts (CDs), that has meant abnormally high APYs — and interest earnings — for much of the last two years.
The trend has impacted all CD terms, but short-term CDs, in particular, have seen rates skyrocket. In fact, short-term CD rates have actually been higher than those on long-term ones — the opposite of how CDs traditionally work.
This won't last forever, though. And with the Fed indicating rate cuts could be coming soon, the days of sky-high short-term CD rates may be numbered as well. That's why it's important to know what experts have to say about short-term CD rates.
Are you considering opening a CD now? See what short-term rate you could lock in here today.
Have short-term CD rates peaked? Here's what experts say
Here's what the experts we spoke to are predicting for short-term CD rates.
There's a chance of higher rates still
CD rates are high due to the Federal Reserve's rate hikes over the last few years — an attempt to slow spending and quell inflation. So far, though, spending has held strong, and in February, inflation even increased slightly.
"Hypothetically, if interest rates are successful for reducing inflation, then perhaps rates can be lowered," says John Jones, investment advisor representative at Heritage Financial in Newberry, Florida. "If current rates are unsuccessful, we may be higher for longer or experience further rate hikes,"
Jones says he's on the "higher for longer" side of the argument.
"Economic indicators have not shown enough resistance or effect on reducing inflation to the Fed's target 2%," Jones says. "My current opinion is that interest rates will remain unchanged for some time or possibly go higher."
It all depends on the data that rolls in, though. The next inflation report will come out April 10 and should shed light on future Fed moves and interest rates.
See how much more you could be earning with a high interest, short-term CD here now.
Short-term CD rates could drop by summer
Most likely, experts say, short-term CD rates will hold steady around their current range and then start dropping by late summer.
"CD and other deposit account rates typically move up or down with changes to the Fed funds rate," says Chris Cucci, senior vice president of Climate First Bank. "We've learned to never try to make predictions on what the Fed will do, but the general sentiment as of late has been that we will see the current higher rates for longer and at least through mid-2024."
The CME Group's FedWatch Tool currently shows about a 61% chance of a rate cut at the Fed's June meeting and an even higher likelihood come July. How far those rate cuts will go is uncertain. According to FedWatch, it's likely the Fed's rate is 0.75 lower than it is today by the end of 2024. That could result in a nearly equivalent drop in short-term CD rates as well.
"We are in an environment right now where the markets are predicting that rates will end up going down over the long term and that short-term rates are at or near peak," Cucci says. "For that reason, we are experiencing the unique phenomenon of short-term CD rates higher than long-term. Banks are anticipating that, while rates are high in the near term, we will see the Fed make moves that reduce interest rates over the long term."
Thinking ahead
If you're looking at maximizing your profit, snagging a short-term CD now may be best — especially with uncertain Fed moves on the horizon. This will also allow you to maintain liquidity in case you need cash later on. Another option is to ladder your CDs, choosing several accounts with different maturities.
"Put some money in a short-term CD and some money in a longer-term one to hedge the risk of rates dropping in the next year or so," Cucci says.
Finally, you can also look to high-yield savings accounts, which also have high rates and allow for easy liquidity.
"Any money you may need in the short term, I would recommend keeping in a high-yield savings account," says Kendall Meade, certified financial planner at SoFi. "This way you can access that money at any time. Just note that with a high-yield savings account, that interest rate can fluctuate — unlike with a CD where you lock in a fixed interest rate."
