A lot of savers are enjoying today's 5% CD rates. But the days of 5% CDs may be numbered.
The reason CD rates are up right now is that the Federal Reserve raised interest rates numerous times in 2022 and 2023 to cool inflation. Since the Fed's efforts have worked, the central bank is now looking to cut rates. And once that happens, CD rates are apt to follow suit.
But the big question is: When will our first rate cut arrive? And should you rush to open a CD before rates start to fall?
A rate cut could come soon -- but it probably won't
The Federal Reserve has four opportunities remaining to cut interest rates in 2024:
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American Express® High Yield Savings
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Western Alliance Bank High-Yield Savings Premier
APY 5.31% Rate info5.31% annual percentage yield (APY) is accurate as of 7/11/2024 and subject to change at the Bank’s discretion. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. to earn $500 to open, $0.01 for max APY Open Account for Western Alliance Bank High-Yield Savings Premier OnWestern Alliance Bank'sSecure Website. Member FDIC. | APY 5.31% Rate info5.31% annual percentage yield (APY) is accurate as of 7/11/2024 and subject to change at the Bank’s discretion. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. | Min. to earn $500 to open, $0.01 for max APY |
UFB Portfolio Savings Account
APY 5.15% Rate infoTo ensure you keep getting the highest rate at UFB, you'll need to keep an eye on their rates. Occasionally, the bank launches new accounts with higher rates. Existing accounts need to contact the bank to request being moved to one of these new accounts. Min. to earn $0 Open Account for UFB Portfolio Savings Account OnUFB'sSecure Website. Member FDIC. | APY 5.15% Rate infoTo ensure you keep getting the highest rate at UFB, you'll need to keep an eye on their rates. Occasionally, the bank launches new accounts with higher rates. Existing accounts need to contact the bank to request being moved to one of these new accounts. | Min. to earn $0 |
- July 30-31
- Sept. 17-18
- Nov. 6-7
- Dec. 17-18
These are the dates the central bank is set to meet before the end of the year. And it's during these monetary policies meetings that interest rate decisions are typically announced.
The general consensus among economic experts is that the Fed won't lower rates at its late July meeting. Although annual inflation dropped to 3% in June, as measured by the Consumer Price Index, the Fed considers 2% annual inflation as the ideal target. The Fed is likely to sit tight a bit longer and see if inflation slows even more, which is why a rate cut in September or beyond is more likely than in July.
However, the Fed could also surprise us. We can't rule out the possibility of a July rate cut, either. But all told, we should see at least one rate cut in 2024, which means CD rates are likely to drop before the year comes to an end.
Should you rush to open a CD before the Fed's first rate cut?
If you have extra money in your savings account that you don't need or aren't using that you could easily move into a CD, then you might as well do so sooner rather than later. But if you're not ready to open a CD -- say, your bank has a $1,000 minimum and you're just a bit short, or you're still figuring out your plans -- then don't stress about opening a CD this minute.
The Fed may not take any action on rates for another couple of months, so you might have plenty of opportunity to lock in a CD at 5%. But even if you don't get to open your CD before a rate cut is announced, understand that the Fed is likely to reduce interest rates gradually, not drastically. Because of this, you might still be able to lock in a great CD rate even after a rate cut happens.
Say you're hoping to open a $1,000 CD at 5.00% APY with a 12-month term. You can earn $50 if that's the rate you snag.
If CD rates fall to 4.75%, guess what? You're looking at earning $47.50. That $2.50 difference should not be something you stress over.
It's fair to assume that CD rates -- and interest rates on a whole -- will drop before 2025. But don't let that mess with your head and cause you undue pressure. You're better off opening a CD when you feel ready, even if that means locking in a slightly lower rate than what you might get today.
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