During 2022 and 2023, the Federal Reserve raised interest rates 11 times to help slow the pace of inflation. Unfortunately, higher interest rates have been harmful to consumers in some ways since they've made loans and credit card balances more expensive.
But those interest rate hikes have also had a silver lining. These days, savings accounts are offering generous interest rates for people with money in the bank. And CD rates are also the highest they've been in many years.
But the rate you can get on a CD today may not be the rate you're able to snag come 2025. And that raises the question: Will CDs still make sense to open next year? Or is the window to open a CD really closing soon?
CD rates should remain fairly attractive in 2025
The Fed's interest rate hikes have led to a situation where many CDs are paying upward of 5% right now. Come 2024, that may not be the case.
Just as the Fed raised interest rates when inflation soared, the central bank is expected to start cutting interest rates now that inflation has cooled. While we don't know exactly when the first of those rate cuts will happen, the Fed has signaled that it's looking to cut rates in 2024.
Because of this, the CD rates savers are seeing today may not be available come 2025. But that doesn't mean CDs won't still be worth it in the new year.
Remember, the Fed raised interest rates to where they are today over a period of more than a year. Similarly, the Fed's interest rate cuts are not expected to be overly drastic, but rather, gradual.
What this means is that come this time next year, you may not be able to sign a 1-year CD at 5% (or slightly more) like you can today. But it's possible that you'll be able to lock in a 1-year CD at 4.5%, or 4.25%. That's still a pretty good deal considering that you're getting a risk-free return, provided you stick to an FDIC-insured bank and limit your deposit to $250,000 ($500,000 in a joint account).
Act quickly if you can
While CDs will most likely continue to make sense in 2025, if you want to get the best rate on your money, the time to act is now. The Federal Reserve's next scheduled meeting of 2024 is set for June 11 and 12. It's unclear as to whether the Fed will be ready to cut interest rates at that point or wait a bit longer.
But once the Fed implements its first rate cut, the rate on CDs is apt to start trending downward. And while that may not happen to such an extreme degree, it's still a wise idea to capitalize on today's CD rates if you can.
So rather than throw a few thousand dollars into home renovations this month or go out and buy new furniture, you may instead want to consider using your spare cash to open a CD while rates are still around 5%. However, if you don't have the funds on hand to open a CD right now and you don't expect to be in that position until 2025, know that you should still have a prime opportunity to lock in a great rate.
These savings accounts are FDIC insured and could earn you 11x your bank
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.
FAQs
It may be that come early 2025, you're looking at 12-month CDs paying 4.25%. That's still not a terrible deal. Of course, it's harder to predict what CD rates will look like in the long term. But CDs may very well have a place in your financial strategy in the coming years, even if rates are lower.
Will CD rates stay high in 2025? ›
CD rates should remain fairly attractive in 2025
While we don't know exactly when the first of those rate cuts will happen, the Fed has signaled that it's looking to cut rates in 2024.
Will CD rates remain high in 2024? ›
The Fed boosted its benchmark federal funds rate numerous times throughout 2022 and the first half of 2023, finally holding rates steady at a target range of 5.25% to 5.50% through the second half of 2023. Rates may eventually begin to decline in 2024.
Should I lock in CD rates now? ›
If you're in a position to save in today's higher interest rate environment, investments like CDs could help accelerate your savings. CD rates have skyrocketed since 2022: 1-year CD rates have increased more than twelve-fold, with 3-year and 5-year CDs up nearly six-fold and five-fold, respectively.
Are CDs safe if the market crashes? ›
Are CDs safe if the market crashes? Putting your money in a CD doesn't involve putting your money in the stock market. Instead, it's in a financial institution, like a bank or credit union. So, in the event of a market crash, your CD account will not be impacted or lose value.
What will CD rates be in 2027? ›
The Top CDs for Locking Your Rate Until 2025 to 2027
| Best 1-Year CDs - Mature Early 2025 | APY | Minimum |
|---|
| Best 3-Year CDs - Mature 2027 | Rate | Minimum |
| Lafayette Federal Credit Union | 5.10% | $ 500 |
| EFCU Financial | 5.00% | $ 500 |
| DollarSavingsDirect | 5.00% | $ 1,000 |
20 more rowsFeb 28, 2024
You can find 6% CD rates at a few financial institutions, but chances are those rates are only available on CDs with maturities of 12 months or less. Financial institutions offer high rates to compete for business, but they don't want to pay customers ultra-high rates over many years.
What is the interest rate forecast for 2025? ›
The median estimate for the fed-funds rate target range at the end of 2025 moved to 3.75% to 4%, from 3.5% to 3.75% in December. For the end of 2026, the median dot now shows a target range of 3% to 3.25%, versus 2.75% to 3% three months ago.
What is the best CD rate for $100,000? ›
Compare the Highest Jumbo CD Rates
| Institution | Rate (APY) | Minimum Deposit |
|---|
| GTE Financial | 5.38% | $100,000 |
| Credit One Bank | 5.35% | $100,000 |
| Third Federal Savings & Loan | 5.25% | $100,000 |
| CD Bank | 5.25% | $100,000 |
13 more rows7% Interest Savings Accounts: What You Need To Know
- As of May 2024, no banks are offering 7% interest rates on savings accounts.
- Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.
That's why if you suspect that interest rates will soon drop, it can be a good idea to put money in a CD to preserve the high APY you would earn. CDs have specified term lengths, ranging from three months to five years.
Should I close a CD early to get a better rate? ›
While you'll miss out on interest for the remainder of the term, if you can lock in a higher rate, this is probably beneficial. But consider if your CD has an early withdrawal penalty, and how much interest you'll need to pay, to see if a new CD rate can help you earn a big enough return to justify paying the penalty.
Should I put my money in a CD or stock market? ›
Because CDs offer a fixed return, they're the better choice if you'll need the money in the near future. For goals you have within the next five years, go with CDs over stocks. To give you a few examples, CDs can work well for money you plan to use for: A down payment on a home.
Why is CD not a good financial investment? ›
Banks and credit unions can penalize savers who withdraw CD funds before maturity. CD rates may not be high enough to keep pace with inflation when consumer prices rise. Investing money in the stock market could generate much higher returns than CDs.
Can I lose my money in a CD account? ›
Standard CDs are insured by the Federal Deposit Insurance Corp. (FDIC) for up to $250,000, so they cannot lose money. However, some CDs that are not FDIC-insured may carry greater risk, and there may be risks that come from rising inflation or interest rates.
Is it good to buy CDs during a recession? ›
During the Great Recession and its aftermath, the stock market went through turbulent shifts, resulting in great losses for some stockholders. CDs are one option that can help protect your investment from times of turmoil by providing a stable income.
How long will CD interest rates stay high? ›
The year 2023 came to a close with yields that had peaked on certificates of deposit (CDs) and other deposit accounts. Although Federal Reserve rate cuts are possible in 2024, it should remain a strong year for savers as annual percentage yields (APYs) stay high overall and inflation hopefully cools further.
What is the interest rate forecast for the next 5 years? ›
Trading Economics offers a more optimistic outlook, predicting a rise to 5% in 2023 before falling to 4.25% in 2024 and 3.25% in 2025. This forecast is supported by Morningstar's analysis, which projects rates between 3.75% and 4%.
