By Kelly Ernst, CBS News featuring Brian Spinelli, CFP®, AIF®, Co-Chief Investment Officer
A certificate of deposit (CD) is a reliable and safe way to earn interest on your savings. CDs are deposit accounts that provide a guaranteed rate of return with no risk. Rates are set when you open the CD account and remain the same throughout the CD’s term. CDs are also protected by federal deposit insurance up to $250,000 per account per institution.
There are several factors that affect CD rates, but the biggest is the overall interest rate environment. CD rates rise and fall in response to the federal funds rate, which is currently the highest it’s been in 22 years. As a result, today’s CD rates are as high as 5.50% APY.
How long will rates remain high, though, and what should you do to take advantage of them? We asked the experts for their opinions.
How high will CD rates go? Experts weigh in.
While no one can predict exactly where CD rates will go, many experts believe we’ll see no more than a slight increase over the next six to 12 months.
“Many believe the Fed has come to the end, or close to the end, of their rate hiking cycle,” says Doug Johnson, CFA, senior investment strategist and partner HCM Wealth Advisors. “This would leave CD rates at, or close to, current levels for the foreseeable future.”
Faron Daugs, CFP, founder and CEO of Harrison Wallace Financial Group, agrees. “I would anticipate CD rates will rise slightly over the next six months,” he says. “However, I do not see them increasing significantly.”
“The wild card would be if the Fed were forced to cut rates in the face of recession,” says Johnson. “This would likely move CD rates lower than current levels.”
A recent Bankrate study found that 78% of economists expect that Fed rate cuts won’t begin until 2024. If this is the case, CD rates will indeed be likely to remain elevated for the next several months at least.
How to take advantage of today’s high CD rates
Opening a CD now can help you enjoy today’s high rates for the duration of the CD’s term, even if overall interest rates go down. By contrast, savings account rates vary based on the federal funds rate, which means they could begin to go down at the beginning of 2024, if experts’ predictions prove true.
“No one knows for sure, but if the Fed ends up cutting rates in 2024 or beyond, savers might find that their interest rates are declining on savings accounts,” says Brian Spinelli, CFP, AIF, Co-CIO at Halbert Hargrove.
By opening a CD now, you can take full advantage of today’s high rates. But which type of CD should you consider? The experts we spoke to were divided.
