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- CD rates have started declining during the second half of 2024 as market conditions change.
- The Fed cut rates for the first time in four years in September, and may cut rates more in 2024.
- If you want to protect against uncertainty, CD ladders can help mitigate risk.
CD rates vary widely across financial institutions. However, if you've been paying attention to the best CD rates, you've likely noticed that CDs have started to decline.
Will CD rates go down more significantly during the latter half of 2024? We'll go over how CD rates have performed in 2024 so far, how CD rates might fare for the rest of 2024, and how to decide if you should open a CD now or wait.
What were CD rates expected to do in 2024?
CD rates are influenced by changes in the federal funds rate. When the Federal Reserve raises rates, CD interest rates typically go up. If the Federal Reserve, or the Fed, begins cutting its rates, CD rates drop. So when people expect the Fed to cut its rates, that also usually means that CD rates are expected to drop, too.
CD rates were extraordinarily high in 2023, and it was expected that the Fed would drop its rates in 2024. However, the Fed kept rates steady throughout the first half of 2024.
The main reason Federal Reserve rates hadn't dropped during the beginning of 2024 is inflation. CD rates "were predicted to go down because we were supposed to have a handle on inflation, and we were supposed to be getting back to the Fed's target, which is the 2% inflation rate," says Malik S. Lee, CFP, founder of Felton & Peel Wealth Management.
CD rates remained relatively high during the first half of 2024. As the anticipation of potential rate cuts rose during mid-2024, there was some rate movement at financial institutions. Select banks and credit unions started to slowly drop CD rates in anticipation of the first rate cut of the year.
CD rate forecast for the second half of 2024
The Fed cut interest for the first time in four years at the September Fed meeting. CD rates have declined on various terms after the meeting occurred.
"The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate," said the Federal Reserve in a press release issued on September 18.
As the Federal Reserve now has a different perspective on moving sustainably toward 2% inflation, it's likely that the Fed is now heading toward a trend of rate cuts. The CME FedWatch Tool, which analyzes the probability of federal rate changes at upcoming Federal Open Market Committee meetings, shows a high likelihood of two more rate cuts this year as well as more in 2025.
Market conditions are changing, so we'll likely see CD rates and other bank account interest rates get less competitive over time, meaning you'll have to say goodbye to 5% interest CDs.
Should I open a CD now or wait?
Knowing when to open a CD is tough, because you'll be locked into whatever rate the CD offered until CD maturity.
Lee says that one way to prepare against the uncertainty of CD rate predictions is to build a CD ladder. A CD ladder is a set of CDs with different term lengths that you open at the same time, so that each CD matures at a different point.
If you have a CD ladder with three CDs in it, which Lee says is a common CD ladder structure, "The theory behind it is that, if the rates go down, that is fine, because you have two instruments that are not maturing" and are locking you in to a high rate, says Lee. If the rates go up, then you still have a short-term CD, such as a 1-year CD, that you can convert to a higher rate, Lee adds.
However, if you feel comfortable trusting the Fed's predictions, you might want to lock in a high CD rate now. Just keep in mind that you'll find higher short-term CD rates vs long-term CD rates right now because banks are predicting that rates will fall soon.
CD rate forecast FAQs
It's unlikely that CD rates will go up in 2024. CD rates were very high going into 2024, but experts have expected rate declines to happen this year. The Fed cut interest rates for the first time at the September Fed meeting, and CDs have dropped as a result. If the Fed cuts rates more at the next Fed meeting or future ones, CD rates will drop more, too.
CD rates will likely decline further during the last few months of 2024.
CD rates are likely to lower in the latter half of 2024, so you might want to lock in a CD now to ensure you earn a high rate. However, if you want to mitigate risk of locking in a bad rate, a CD ladder might be a good choice.
CD rates are likely to go down overall in 2024. If the Fed lowers its rates, CD rates will also go down more.
It's hard to predict what exact CD rates will be in 2025. However, it's likely that average CD rates will be lower in 2025 than they are in 2024. Just keep in mind that CD rate predictions become less accurate as timeframes lengthen.
