A number of surveys are predicting that interest rates will drop in 2024, though when, exactly, is up for debate. Academic economists polled by the Financial Times reveal that they expect rate cuts will happen midway through 2024, while Goldman Sachs economists predict the Federal Reserve will hold off cutting rates until the fourth quarter of next year. And ING Economics forecasts that rates will be cut six times next year, starting in the second quarter.
If the Fed opts to cut the federal funds rate, certificate of deposit rates might come down — though, of course, other factors go into CD rates as well. “There’s no doubt that we are experiencing a period of high rates that will not last forever due to its effects on the economy in the long term, so everyone who has available funds should take advantage of these rates and optimize their savings,” says certified financial planner Alonso Rodriguez Segarra at Advise Financial. (See some of the best CD rates you may get here.)
If you’re trying to grab the best yields, Greg McBride, chief financial analyst at Bankrate, says there’s no better time than the present. “Once the Fed verbalizes that they’re done raising interest rates, CD yields will start to pull back and that will accelerate as the initial rate cut comes into view,” says McBride.
He predicts that CD yields will trend lower as 2024 unfolds, with the best yields at the beginning of the year. “The Federal Reserve transitioning from hiking rates in 2022 and 2023 to cutting rates at some point in 2024 will be the biggest catalyst for movement in CD yields,” says McBride.
But just because there’s hype surrounding a potential interest rate decline in 2024, doesn’t mean it’s certain. “When I opened my practice in 2000, the prevailing opinion was that interest rates couldn’t possibly go any lower. They were at 6% and the next 13 moves in a row by the Federal Reserve were all interest rate cuts,” says certified financial planner Kenneth Robinson at Practical Financial Planning. That said, getting ahead of rate cuts could pose the same kind of risk as getting ahead of rate increase.
As for whether it’s smart to invest in a CD or savings vehicle right now, Peter Salkins, financial planner for Integrated Partners, says, “As rates increased at a torrid pace over the past couple of years, it paid to stay short term on fixed income investments. Generally, the highest interest rates were paid on money markets, short-term CDs and Treasuries. This was due to the inverted yield curve we were experiencing.”
Now, the consensus is that we’re nearing the end of this cycle of interest rate hikes and the market seems to be focused on when the Fed will actually cut rates. “If the Fed does cut rates in 2024, it would pay to lock in higher interest rates now,” says Salkins. (See some of the best CD rates you may get here.)
Why lock in a CD rate?
If interest rates drop during your CD term, you’ll still earn the amount of interest you were receiving before the drop, whereas high-yield savings accounts don’t offer the same type of guaranteed locked in rates. On the flip side, if rates then rise, you’re locked into that lower rate with your CD.
It’s also important to consider that a CD might not be right for you. Before making any big financial decisions, “Focus on your time horizon, risk tolerance and overall goals in choosing any investment. On CDs, beware of holding periods, early redemption fees and teaser rates as they may only apply to a limited amount of money,” says Salkins.
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