CD account interest forecast for spring 2024: Here's what experts predict
Inflation and elevated interest rates continue to weigh on the U.S. economy. The Consumer Price Index reports inflation increased 3.2% year-over-year in February, a slight increase from the 3.1% bump in January.
Consequently, the Federal Reserve, which in December suggested three interest rate cuts in 2024, paused rates for the sixth time in the last seven meetings. Many economists now anticipate a delay in rate cuts until later in the year or when there is evidence that inflation is moving toward the Fed's 2% target rate.
While the delay in interest rate cuts is bad news for borrowers, it could benefit savers. Interest rates on deposit accounts like high-yield savings accounts and certificates of deposit (CD) have soared in this high-rate environment. Many of the best CD accounts have interest rates of 5% or greater.
So what impact will rising inflation and stagnant interest rates have on CD account rates this spring?
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CD account interest forecast for spring 2024: Here's what experts predict
We consulted several financial experts to get their take on the possible scenarios that could play out this spring. Here is what they said:
CD account interest rates will rise further
At last week's Federal Open Market Committee (FOMC) meeting, Fed Chair Jerome Powell reiterated the committee still aims to reduce interest rates three times in 2024. This development, along with the Fed's decision to leave the interest rate unchanged for now run counter to the idea that CD rates could rise.
"It is unlikely that CD rates will continue to rise in the immediate future. Typically, when the Fed halts its interest rate hikes, banks have less incentive to raise the rates they offer on deposit accounts, including CDs. This is because the cost of borrowing money does not increase further, reducing the need for banks to attract additional deposits with higher rates," says Brian Seymour, CEO and founder of Prosperitage Wealth.
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CD account interest rates will stay the same
Some financial experts, such as Osman Ulhaq, chief strategy and growth officer at OneAZ Credit Union, anticipate CD rates will remain steady, at least as long as the federal funds rate does the same.
"Our prediction is that share certificate or CD rates will remain steady in the short term and then decline towards the end of the year," says Ulhaq. "Though inflation rates are rising, and it is often thought that rates mirror inflation, that is not always the case. The Fed decided in its March meeting to keep interest rates the same, but we're still predicting that over the next year, the Fed will lower rates, which will cause us to see a decline in share certificate rates."
CD account interest rates will drop
Economists and rate-watchers widely agree that interest rates will likely drop in 2024 if the Fed follows through on its goal of cutting interest rates multiple times during the year.
"CD rates will most likely drop and drop substantially in 2024," says Robert Johnson, professor of finance at Heider College of Business at Creighton University. "The biggest reason is the likelihood of Federal Reserve rate cuts later this year."
Johnson points to CME Group's FedWatch Tool, which predicts Federal Reserve interest rate decisions based on the future contract prices of the fed funds. "Today, according to the CME's FedWatch Tool, the consensus of market participants is that in December of 2024, the target Fed funds rate will be a full 75 basis points lower than today. This will translate into lower CD rates. My advice to CD investors would be to lock in higher rates today and to not anticipate higher rates in the near future."
The bottom line
CD interest rates are currently high, with some online banks offering CD rates from 5.50% to 5.75%. Still, it's essential to only deposit an amount you don't anticipate needing before your CD term's maturity date. "When deciding if a CD is right for you and your saving goals, it's important to consider foreseeable expenses and when you may need those funds," says Steve Goodman, managing director and head of product and consumer banking at Chase. "With a CD, the money typically isn't immediately accessible without penalty if you need to access it early."
So, consider choosing a CD term that aligns with a specific savings goal. For example, if you plan on putting a down payment on a home in three years, a 36-month CD might be a suitable term to park your money and earn a higher yield until you need the funds.
