Here's Exactly When I Expect CD Rates to Fall -- and What You Can Do About It

Let's be perfectly clear. While I can make a pretty educated prediction about when CD rates might start to move lower, there's absolutely no way to know for sure. There are a lot of factors that influence interest rates, and even the most experienced industry experts get it wrong often. After all, virtually no experts would have said at the beginning of 2022 that 5% yields on 1-year CDs would be readily available in 2024, but here we are.

Having said that, there are a few things we can use to set expectations of when CD rates might fall. Here's when I expect it to happen, and what you can do to prepare your money.

Here's when I expect CD rates to fall

When trying to predict when CD rates will fall, there are two basic concepts to know. First, while CD rates aren't directly tied to the benchmark interest rates controlled by the Federal Reserve, they almost always move in the same direction -- and that's especially true when it comes to shorter-term CDs (say, 18 months or less).

Second, the Fed is widely expected to lower the benchmark federal funds rate this year. The only question is when, how often, and by how much.

The latest projections from the Federal Reserve indicate that the policymakers anticipate three quarter-point rate cuts this year, meaning that the federal funds rate would drop by 0.75% in total. But there's no indication of when it will start to do it.

On the other hand, the CME FedWatch tool, which essentially tells us what investors expect, gives us a little more insight. And according to this tool, the consensus expectation of when the Fed will start to cut rates is at its meeting on May 1. If this proves to be true, I expect CD rates to start to head (mildly) lower very soon after.

However, the market is also pricing in a significant chance that the Fed will decide to start cutting rates in March instead. So, investors have somewhat mixed expectations.

In either case, I'd expect CD rates to move lower almost immediately after the Fed decides to start cutting rates.

If you're waiting on the sidelines, now is the time

The first thing to know is that if you have money on the sidelines, now could be the best opportunity to lock in a high CD yield at a bank or other financial institution.

While there is certainly no guarantee that rates can't stay elevated, or even go higher in the right circumstances, all of the available information points towards CD rates at the end of 2024 that are significantly lower than they are today.

In other words, don't sit on cash hoping for even better CD yields to appear. It's not very likely to happen. Check out some of our list of the best CD rates to see what is out there, as the probability of higher rates being available anytime soon are rather low. The highest CD rates are currently available on certificates of 18 months or less, but you can find some attractive yields on 3-year and 5-year CDs as well. Just to name a few examples of what is available as of this writing:

• You can get a 1-year Barclays Online CD with a 5.00% APY with no minimums.
• Marcus by Goldman Sachs is offering an 18-month CD with a 4.60% APY with a $500 minimum.
• Ally Bank is offering a 5-year CD with a 3.90% APY with no minimum.

The bottom line is that while nobody can be 100% sure about the future of interest rates, all signs point toward CD rates starting to fall from multi-year highs this spring. If you have cash on the sideline, or extra money in a savings account, and you want to maximize yield, now could be a great opportunity to lock in a high CD rate before they start to fall.