Will CD rates stay high in 2024?
Certificates of deposit (CDs) are a popular way to save money – not only do they pay solid interest, they are extremely safe. CDs have virtually no risk, as the money is stored safely in a bank – and even if the bank fails, the FDIC insures CDs for up to $250,000.
The effectiveness of CDs for savers, though, depends largely on the interest rate you are offered by the bank or financial institution that you use to open a CD. Right now, CD rates are very high, driven mostly by the elevated federal lending rates set by the Federal Reserve. This makes saving with CD rates especially attractive right now.
Rates change all the time, though, and a favorable interest rate today does not guarantee that the same thing will be true six months from now. Many savers are wondering what CD rates will look like as the calendar turns the page into 2024. While it isn't possible to say exactly what will happen, there are general forecasts that can be made.
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Will CD rates stay high in 2024?
While nothing is for certain, it is likely that CD rates will stay fairly high in 2024.
"So long as the Fed keeps rates where they are, CD rates will likely remain where they are" says Erik Nero, a certified financial planner, in an e-mail.
The question, then, is what the Fed will do in terms of rates. CD rates are as high as they are right now because the Fed has raised rates repeatedly over the past 18 months. The Fed has raised rates in an attempt to control inflation, which has been higher than usual during this time period, peaking at more than 9% year-over-year in June of 2022.
The last inflation report put the year-over-year inflation rate at 3.7%. That is obviously a lot better than the high of more than 9%, but it is still fairly far off from the Fed's target rate of 2%. For this reason, it is unlikely that the Fed will cut rates by very much. There are currently tentative plans for two rate cuts in 2024, down from the original plan for four – and it remains possible that the Fed will keep rates where they are or even raise them again over the course of 2024 if inflation continues to be a problem.
Nicholas Covyeau, a certified financial planner with Swell Financial says that "it continues to remain a ripe environment for CDs," and that while it seems possible that we have hit the high point for the federal funds rate, it doesn't seem like rates will be coming down anytime soon.
Even if the Fed does decide to cut rates, Nero says that the pressure at banks to secure consumer dollars could keep CD rates high. "Competition for deposits may offer consumers some attractive rates even if the Fed cuts rates," he says.
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What else could impact CD rates in 2024?
While the rate environment is the most important factor in determining CD rates, there are other things to consider as well.
One thing to look for is the Treasury yield. That is the interest rate that the US government uses to pay its debts. Right now, the 10-year treasury yield is hovering between 4.5% and 5%, a high rate. Banks use the money that they hold to invest in Treasuries. When the treasury yield is high, like now, CD rates tend to follow. If the Treasury yield were to go down sharply in 2024, the average CD interest rate could follow, even without action from the Fed.
The economy more generally could also impact CD rates. If the economy were to go into a recession in 2024, for example, rates could end up slowing. Geopolitical factors from around the globe could also have an impact.
If you're worried about the rate environment cratering, Covyeau suggests CD laddering as a way to lock in rates now. This involves buying CDs with different terms and reinvesting the money when one term expires. This allows you to have free cash to potentiallt put into an even higher interest-earning CD now.
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The bottom line
CD rates are high right now, and chances are they will remain high in 2024. Many financial advisors don't see the Federal Reserve lowering the federal funds rate drastically in the next year, meaning that CD rates will probably stay fairly high as well.
