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How far will CD rates fall if the Fed cuts rates? Here's what experts say

Cutting the budget - Scissors and dollar
If the Fed starts cutting rates, it could have a big impact on what CD accounts are offering. PHIL LEO/Getty Images

Inflation has been high for years now, and while it's decreased quite a bit from its peak of 9.1% in June 2022, it's still below the Federal Reserve's target goal of 2%. To move the needle and curb spending further, the Fed has kept interest rates paused at a 23-year high at its last three meetings.

While that's bad for consumers using credit cards, mortgages and loans, as higher rates mean paying more in interest on the money borrowed, it's a boon for savers, resulting in hefty interest rates on savings accounts and certificates of deposit (CDs).

What goes up must come down, though, and at some point, the Fed is likely to make rate cuts once inflation is under control. While the Fed rate doesn't directly impact the rates on savings accounts and CDs, the two generally move in the same direction. So the question remains: How long will these high CD rates last? And if the Fed does cut rates, how far will CD rates have to fall? 

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How far will CD rates fall if the Fed cuts rates? Here's what experts say

Here's what experts have to say about how far CD rates could fall if the Fed cuts rates. 

CD rates will fall incrementally in the short term

Experts largely agree that CD rates are headed for a downturn — and that could potentially happen soon. According to the CME Group FedWatch Tool, the Fed may start cutting rates at its upcoming June or July meeting, though that may be less likely with the March inflation rate ticking back up to 3.5%

When a rate cut happens, experts predict a 0.25-point drop. This should trickle down to CD rates with a roughly 0.25% drop as well, experts say.

"Based on current trends, the Fed is likely to start cutting rates this summer and reduce the target rate two to three times in 2024 — about a quarter of a point each time," says Stacy Johnson, senior portfolio manager for TIAA. "However, they will adjust as needed if the data and trends change."

That last point is key, as experts say it won't be a steep downslide by any means — but rather a slow descent over time. 

"The risks are balanced with regard to policy adjustments, and they plan to execute in a measured fashion," says Jeff Krumpelman, chief investment strategist and head of equities at Mariner Wealth Advisors. "They can cut, but they can take their time doing so."

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Expect a bigger fall by the end of the year

If inflation trends downward in the future and the Fed stays on track with its three rate cuts, experts say a 0.75-point dip in CD rates is likely on the horizon — at least by the end of 2024.

"It has long made sense that the Fed cut rates three times and by a moderate 75 basis points this year," Krumpelman says. 

Don't expect those dips to hit all CD terms equally though. Short-term CDs, which are more tightly tied to the Fed's rate, "will fall far faster than longer-dated maturities," he says. 

They won't bottom out, though. While experts predict the yield curve will invert later this year or early next — meaning longer-term CDs will once again start paying more than shorter-term ones — short-term CDs should still offer solid rates for those who use them.

"Shorter CD rates won't collapse and will still offer far higher yields than the ones we experienced in 2021 and prior years," Krumpelman says. "Even in 2025, we expect short CDs to pay more than 3%."

The bottom line

With CD rates poised to fall in the future, you may want to open any new CDs you're eyeing now. This will allow you to lock in today's higher interest rates and ensure solid long-term returns. Just be sure you have a timeline in mind for when you'll need the cash, as most CDs come with early withdrawal penalties

"It's important to time the CD maturity with your goal of when you need the money," says Kendall Meade, a certified financial planner with SoFi. While it may seem strange to choose a long-term CD with lower rates, Meade says to remember: You're locking that in for years." 

If you're not sure when you'll need the cash, consider laddering your CDs — or getting several accounts with different maturity lengths. Krumpelman recommends opening CDs "scattered across various years — some coming due in one, two, three, four, five, and six years. This is a moderate approach that minimizes your interest rate risk."

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