Will CD Rates Remain Sky-High in 2024?

You can't throw a stick without hitting a bank or credit union touting CD rates north of 5%. It's a great way to grow money that's tucked away in a savings account and losing ground to inflation. Another thing that makes today's CDs so attractive is the number of terms from which you can choose. In short, CDs allow you to customize your FDIC-insured investment.

Here, we wrestle with the question of how long we can count on rates to remain elevated.

The trigger

The Federal Reserve was established in 1913, the year Woodrow Wilson was sworn in as the 28th president of the United States. Since that time, the Federal Reserve has acted as central control of the U.S. monetary system. Its primary function is to take steps to avoid financial crises.

On occasion, to get inflation under control, the Fed must raise the federal funds benchmark rate, the interest rate at which banks loan money to other banks. While mortgage rates of 3% are a dream for home buyers and lower-than-usual APRs on credit cards make borrowing and paying off debt easier, it's that easy access to money that drives inflation. Left unchecked, hyperinflation can destroy an economy.

For example, in 1994, prices in Yugoslavia doubled every day. Imagine buying a loaf of bread only to have it double in price the next day. To prevent hyperinflation in the U.S., the Federal Reserve makes borrowing money less attractive indirectly by raising interest rates.

It took its sweet time, but the annual inflation rate has cooled from 6.5% in 2022 to 3.7% today. While the Fed aims to get the rate of inflation down to 2%, it may be done raising rates for now.

One of the few silver linings associated with rising interest rates, however, is higher-than-average CD rates.

Expert predictions

In terms of how long we can count on rates building up our emergency savings accounts, it all comes down to how long the Fed allows interest rates to remain high.

We know that the Federal Reserve has signaled no new rate hikes, but it certainly has not moved to lower the benchmark rate yet. Our cue that CD rates are about to decrease is when we see overall interest rates dropping.

However, the Mortgage Bankers Association (MBA) and the National Association of Realtors do not expect the rate to decrease by much as we move into the new year. Both organizations predict a rate that inches downward throughout 2024 and into 2025. What that is likely to mean for CDs is a slow decline in APY, with no sudden or drastic changes on the horizon.

A sample of attractive CD rates

Financial institutions understand that they're competing for customers. Offering ever-higher CD rates is one way to do that. Here's a sampling of great rates available for the taking:

• City Credit Union CD: 6% APY on a 12-month CD
• Credit Human CD: 5.80% APY on a 12-month CD
• Barclays Online CD: 3.25% APY on a 18-month CD
  • Open account now: Barclays Online CD.
• Western Alliance Bank CD CD: 3.90% APY on 9-month and 12-month CDs
  • Open account now: Western Alliance Bank CD.

Astronaut Neil Armstrong once said, "Science has not yet mastered prophecy," and that's certainly true of interest rates. As much as we study historical trends, we cannot predict another pandemic or major world event that will ultimately impact CD rates.

The best any of us can do is to lock in the CD rate that will benefit us most and help our money grow while the growing is good.