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Inflation and high interest rates continue to weigh on the U.S. economy. The Consumer Price Index reports inflation increased by 3.2% year-over-year in February, a slight increase from the 3.1% increase recorded in January.
As a result, the Federal Reserve, which suggested in December three interest rate cuts in 2024, suspended the tariffs 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 closer to the Fed’s 2% target rate.
Although the delay in lowering interest rates is bad news for borrowers, it could benefit savers. Interest rates on deposit accounts like high yield savings accounts And certificates of deposit (CDs) have soared in this high rate environment. A lot of best CD accounts have interest rates of 5% or more.
So, what impact will rising inflation and stagnant interest rates have on CD account rates this spring?
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Interest Forecast on CD Accounts for Spring 2024: Here’s What Experts Predict
We consulted several financial experts to get their views on possible scenarios that could play out this spring. Here’s what they said:
CD account interest rates will rise further
At the Federal Open Market Committee (FOMC) meeting last week, Fed Chairman Jerome Powell reiterated that the committee still aims to reduce interest rate three times in 2024. This development, along with the Fed’s decision to leave the interest rate unchanged for now, runs counter to the idea that CD rates could rise.
“CD rates are unlikely to continue to rise in the immediate future. Typically, when the Fed stops its interest rate hikes, banks have less incentive to increase the rates they offer on CD accounts. deposit, including CDs. This is due to the cost of CDs. Money borrowing does not increase further, reducing the need for banks to attract additional deposits at higher rates,” says Brian Seymour , CEO and founder of Prosperitage Wealth.
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CD account interest rates will remain the same
Some financial experts, like Osman Ulhaq, director of strategy and growth at OneAZ Credit Union, predict CD rates will remain stable, at least as long as the federal funds rate does the same.
“Our forecast is that stock certificate or CD rates will remain stable in the short term and then decline towards the end of the year,” says Ulhaq. “Although inflation rates are rising and rates are often thought to reflect inflation, this is not always the case. The Fed decided at its March meeting to hold interest rates unchanged, but we still expect that for next year the Fed will cut rates, which will lead to lower stock certificate rates.”
CD account interest rates will drop
Economists and rate watchers largely agree that interest rates will likely fall in 2024 if the Fed continues its goal of cutting interest rates multiple times throughout the year.
“CD rates will most likely decline and decline significantly in 2024,” says Robert Johnson, a finance professor at Creighton University’s Heider College of Business. “The main reason is the likelihood of a Federal Reserve rate cut later this year.”
Johnson cites CME Group’s FedWatch tool, which predicts the Federal Reserve’s interest rate decisions based on future federal funds contract prices. “Today, according to the CME’s FedWatch tool, the consensus among market participants is that in December 2024, the target federal funds rate will be 75 basis points lower than today. This will translate by a drop in CD rates. My advice to CD investors would be to secure higher rates today and not anticipate higher rates in the near future.”
The essential
CD Interest Rates are currently high, with some online banks offering CD rates ranging from 5.50% to 5.75%. Still, it’s essential to only deposit an amount you don’t anticipate needing before your CD’s maturity date. “When deciding whether a CD is right for you and your savings goals, it’s important to consider predictable expenses and when you might need these funds,” says Steve Goodman, managing director and head of personal banking products and services at Chase. “With a CD, the money is generally not immediately accessible without penalty if you need to access it sooner.”
So consider choosing a CD term which corresponds to a specific savings goal. For example, if you plan to make a down payment on a house in three years, a 36-month CD might be an appropriate length of time to park your money and earn a higher return until you need the funds.
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