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Inflation has been higher than the 2% target rate for years now, forcing the Federal Reserve to raise interest rates — and keep them there. That’s been a challenge for hopeful homebuyers or anyone else looking to borrow money at today’s high rates, but for savers, it’s been a boon.
Changes might be coming, though.
Recent reports show that inflation has been cooling rapidly over the last three months, and, in turn, the Fed has indicated rate cuts may be in the future — with one rate cut expected as soon as its September meeting, in fact. So what could this mean for interest rates on certificates of deposit (CDs)?
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CD interest rate forecast for fall 2024: Everything experts predict
Here’s what experts say about what could happen with CD rates this fall.
CD account rates have already started to fall
According to CDValet’s Q2 Rate Watcher Report, rates on CDs may have already peaked. That is due, at least in part, to the Fed’s mention of a potential rate cut, which Chairman Jerome Powell has said is “on the table” for its September meeting.
“As inflation has slowly decreased, many financial institutions have already started to slowly decrease their deposit interest rates,” says Brittany Pedersen, director of deposit and payment operations at Georgia’s Own Credit Union.
But that’s not the only factor at play. Waning demand for CDs is also having an impact, and banks are currently experiencing the slowest rate of CD deposits in the last year, according to CDValet’s report.
“We’ve already seen financial institutions begin to pull back on their CD rates, especially in maturities longer than one year,” says Mary Grace Roske, senior vice president of communications at CDValet.com and Seattle Bank. “The highest rates remain in the shorter terms, such as six and seven months.”
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CD account rates will fall further
Unfortunately, CD rates are likely to fall even further if the Fed’s rate cut comes to fruition, experts say.
“Consumers should expect interest rates to drop this fall and winter,” Pedersen says. “The trajectory of CD interest rates can be loosely tied to the Federal Funds rate and inflation. If the Federal Reserve does lower the prime interest rate this fall, it will certainly have an impact.”
Short-term CDs are likely to be impacted the most, but that doesn’t mean rates are going to plummet. The Fed is only projected to reduce its rate by 25 basis points, at least at the outset. For this reason, “any decline is expected to be moderate,” says Cameron Burskey, senior partner at Cornerstone Financial Services.
Still, the drop may “feel significant” for some, Pedersen says, simply due to how high rates have been for the last year or so. According to CDValet’s report, there were some banks offering APYs as high as 9% in the second quarter of 2024.
Act now to maximize your rate
Long story short: Open a CD now if you’re looking to max out the interest rate you’re offered.
“If you wait too long, you run the risk of rates dropping and decreasing the amount of interest you will earn,” Pedersen says.
You should also shop around when opening your account and, if you have a current CD that’s about to mature, have a plan for where you’ll take your money next.
“In the third quarter, about $850 billion in bank and credit unions CDs will mature and depositors are looking for a place to move their funds,” Roske says. “The biggest mistake people can make is to be asleep at the wallet when their CD matures. Sleepy savers are likely leaving money on the table when they don’t take the time — before their CD matures — to compare rates from other financial institutions.”
It’s especially important if you have a CD at a larger bank which, “generally speaking,” Roske says, “pay lower CD rates.”
“There are still many community banks and credit unions offering very attractive rates in the two-, three- and four-year maturities,’ Roske says. “Savers should take the time to find them.”