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MoneyWatch: Managing Your Money
By Jerry Brown
Edited By Angelica Leicht
/ CBS News
Inflation remains relatively high at 3.4%, higher than the Federal Reserve's target rate. To achieve its goal of lower inflation, the Fed opted to keep the federal funds paused at the same rate at last month's meeting. As a result, interest rates for borrowing products, like auto loans and home loans, will remain high — at least until the Fed's next meeting.
The continued rate pause was good news for savers, though, since high-yield savings and certificate of deposit (CD) rates will likely stay elevated for now. In fact, some of the best CD accounts have interest rates of over 5% currently. But that could change over time. So what exactly will happen with CD rates this summer?
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What will happen to CD rates in the summer of 2024?
Here's what some experts think might happen to CD rates this summer.
CD rates might remain flat
When the Federal Open Market Committee (FOMC) met earlier this month, the Federal Reserve voted to keep the federal funds rate the same. As a result of this decision, CD rates could remain flat this summer, some experts say.
"Short-term rates will likely stay flat or decline slightly if the FED cuts rates later this year," says Noah Damsky, CFA, principal of Marina Wealth Advisor. "The opportunity for higher CD rates is the least probable outcome."
Chris Diodato, CFA and CFP and founder at WELLth Financial Planning, also believes CD rates will stay the same this summer.
"Officials at the Federal Reserve have noted that progress on beating down inflation has stalled in 2024," says Diodato. "Wage inflation is too high, and we're starting to see inflation in raw materials like copper and aluminum."
Because of those factors, Diodato expects rates to stay the same, at least through the third quarter of this year.
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CD rates might drop
Most of the experts we spoke with agree that CD rates will likely fall this summer, but that's only if the Fed lowers rates.
"If the Fed lowers their benchmark federal funds rate (what they directly control), it could cause CD rates for just about every term under five years to fall," says Diodato.
However, he believes it's harder to predict the direction of CDs with terms over five years.
"Longer-term CDs are influenced by interest rate changes, but are also determined by factors, such as long-term inflation and economic growth expectations, which the Fed doesn't directly control," Diodato says.
"The Fed may lower rates in the fall," says Angela Dorsey, a certified financial planner and founder at 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 can lock in a good CD interest rate for up to a year or longer.
"If someone is waiting for rates to increase to purchase a CD, they may miss out on today's relatively high rates. I would encourage them to purchase now and lock in today's rate by purchasing a 6-month or 12-month CD," says Dorsey.
Brian Seymour, II, a certified financial planner, ChFC, and founder at Prosperitage Wealth, has similar thoughts.
"I would remind anyone looking at current CD rates of the below 1% rates we saw last decade," says Seymour, "Locking in a guaranteed rate above 5% can provide investors with a return and peace of mind that may not be available much longer."
The bottom line
Right now, CD rates are high — and some financial institutions offer rates as high as 5.30%. But before you open one, consider alternative banking products and the likelihood you'll need to access the money before the term expires to avoid early withdrawal penalties.
"With the rates of CDs and high-yield savings accounts (HYSAs) so comparable, an HYSA should be considered as an alternative to locking your money away for extended periods of time," says Seymour.
If you decide to get a CD, select a CD term that fits your financial situation. For instance, if you plan on paying your child's first-year tuition in two years, consider getting a 2-year CD.
