If you had looked at atwo years ago, chances are you would have seen a menial interest rate that may not have piqued your interest. On the other hand, if you've looked at a are hard to ignore.
Today'sare offering rates well over 4.5%. But those rates aren't going to last forever. The Federal Reserve makes changes to its federal funds rate, the rate that forms the foundation for returns on CDs, based on inflation. The central bank increases rates when inflation climbs and decreases rates when price growth slows.
While no crystal ball tells the future of interest rates in the United States, economic data suggests that impressive yields on long-term CDs aren't going to stick around very much longer.
Why time is running out to get a great long-term CD rate
As mentioned above, the Federal Reserve increases and decreases its target federal funds rate in response to changes in inflation. Over the past two years, thein an attempt to combat high inflation rates — and their efforts seem to be working.
Recent data points to dampening inflation and growing unemployment. Considering the current economic data, this may be a. Here's why:
Interest rates are cyclical
"In today's market, there are many good reasons to open a CD," says Anna Maassel, investment advisor representative and retirement planner at Voyager Advisory Group. "Given current interest rates, there are many CDs available with rates north of 5%."
But it's important to keep in mind that those interest rates are cyclical — meaning they move in upward and downward cycles. Considering the cyclical nature of interest rates, the high CD returns Maassel mentions aren't likely to last forever.
Inflation is dampening
When the Federal Reserve set its sights on inflation in March 2022, it moved forward with an aggressive plan to slow the growth of prices across the United States. That led to 11 consecutive rate hikes following the central bank's regularly scheduled monetary policy meetings. However, thefollowing the last two meetings, and for good reason. Inflation seems to be settling.
Year-over-year growth in. Sure, the current inflation rate is still well above the Fed's 2% target, but economic policy changes can have a delayed impact. As such, there's a strong chance that we could see further dampening of inflation ahead.
Should inflation continue in the downward direction, the Federal Reserve may begin to ease interest rates — resulting in lower CD returns.
Unemployment is growing
Aside from the fact that inflation seems to be slowing, the unemployment rate in the United States is beginning to tick upward. That's a sign that corporations are expecting economic tightening and are reacting by making fewer jobs available. According to the United States Bureau of Labor Statistics, 6.5 million Americans are currently unemployed. That equates to a loss of 849,000 jobs since April of this year.
At the moment, the unemployment rate is 3.9% — which isn't going to sound any alarms. However, that number is up about 0.5% month-over-month, and if it continues to tick upward, it could give the Federal Reserve yet another reason to reduce interest rates.
CDs are safe savings vehicles
It's also worth noting thatplace to store your money. That is, as long as you open your account with a reputable financial institution. That's because CDs are deposit accounts, meaning they're typically FDIC- or NCUA-insured for up to $250,000. So, even in the worst-case scenario for the market, the financial institution or both, your money will be safe in a CD.
The bottom line
Interest rates are cyclical and savers have been enjoying an upward cycle as of late. However, the high interest rate environment can't last forever. Locking in today's high returns with a long-term CD means you'll maintain impressive yields if and when the Federal Reserve starts to bring rates back down.
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