zaro

Are CD Rates Expected to Continue to Rise?

Published in CD Rates Forecast 3 mins read

No, current projections indicate that Certificate of Deposit (CD) rates are not expected to continue to rise; instead, they are anticipated to decline, particularly starting in 2025. This shift comes after several years of higher-than-average yields, which made CDs an attractive savings option.

Understanding CD Rate Projections

The trajectory of CD rates is closely tied to the broader economic environment and the monetary policy set by central banks. Historically, CD rates tend to move in the same direction as the federal funds rate, which is a benchmark interest rate set by the Federal Reserve. When the Federal Reserve raises this rate, CD yields generally follow suit, and conversely, when the rate is lowered, CD rates typically decline.

Why CD Rates Fluctuate

Several key factors influence the movement of CD rates:

  • Federal Funds Rate: As the primary benchmark, changes in the federal funds rate by the Federal Reserve directly impact the interest rates banks offer on deposits, including CDs. This rate is adjusted based on economic conditions, inflation, and employment goals.
  • Inflation: High inflation can prompt central banks to raise rates to cool down the economy, which in turn can lead to higher CD rates. Conversely, a slowdown in inflation might allow for rate cuts.
  • Economic Outlook: The overall health and growth prospects of the economy play a significant role. A robust economy might see stable or rising rates, while a recessionary environment could lead to rate cuts.
  • Bank Competition: Banks also adjust their CD offerings based on competition from other financial institutions and their need to attract deposits.

What the Future Holds for CD Rates

Following a period characterized by higher-than-average yields, the outlook for CD rates suggests a downward trend. While the exact timing and magnitude of the decline can vary, expectations point towards a reduction in rates starting in 2025.

The following table illustrates the general trend observed and projected for CD rates:

Period CD Rate Trend Contributing Factor (Example)
Recent Years Higher-than-average Federal Reserve interest rate hikes
2025 and Beyond Expected Decline Anticipated easing of monetary policy and rate cuts

Implications for Savers

For individuals considering or holding Certificates of Deposit, these projections have several implications:

  • Locking in Rates: Savers looking to secure the currently available higher rates might consider longer-term CDs before rates begin their anticipated decline.
  • Laddering Strategy: A CD laddering strategy, where you invest in CDs of varying maturities, can help mitigate interest rate risk by allowing portions of your savings to mature at regular intervals, providing flexibility to reinvest at new rates.
  • Diversification: Exploring other savings and investment vehicles should be part of a comprehensive financial strategy, alongside CDs.

Understanding these dynamics can help individuals make informed decisions regarding their savings and investment strategies amidst changing economic forecasts.