Certificates of deposit (CDs) have become such a popular savings tool in 2024. The best CD rates savers are enjoying today are among the highest rates we’ve seen in years, with many CDs paying upward of 5%. That’s a great deal when you consider that putting money into a CD is a pretty risk-free endeavor, provided you choose a bank that’s FDIC insured.
But there’s reason to believe that the CD rates we’re seeing today won’t be available for that much longer. Specifically, recent economic data indicates that CD rates might start to slip sooner than expected.
Why CD rates might soon fall
The reason CDs are paying so generously these days is because the Federal Reserve implemented a series of interest rate hikes in 2022 and 2023 as a means of slowing the pace of inflation. The Fed’s efforts worked to a large degree, and living costs have risen at a more moderate pace in the past year than they did in 2022.
But now that inflation levels are getting closer to where the Fed wants them to be, the central bank is gearing up to start cutting interest rates. And once that happens, CD rates are likely to follow suit.
The reason the Fed has yet to implement any interest rate cuts this year is that inflation, though much improved from 2022, is still stuck at an elevated level, fueled by a strong economy. But recent unemployment data tells us that this trend may be somewhat short-lived.
For the week ending May 9, first-time unemployment benefit applications rose to their highest level since August. Meanwhile, April’s recently released jobs report showed that only 175,000 new positions were added that month — a number that fell short of the 245,000 jobs economists were expecting.
None of this is a reason to panic about the economy. Generally speaking, 175,000 new jobs in a given month is not a poor showing. But these two pieces of data do point to a slightly less strong economy than what we’ve seen in recent months. And that could lead the Fed to move forward with interest rate cuts sooner rather than later.
Once that happens, CD rates could start to fall. So you may want to open a CD now, before the Fed has a chance to lower interest rates.
It pays to take action in May
The Federal Reserve is scheduled to have a two-day meeting on June 11–12 to discuss its interest rate policies. At that meeting, the central bank may decide to move forward with its first rate cut in years, especially in light of recent economic data. So if you have the money on hand, you may want to look at opening a CD in May, before rates become less favorable.
Of course, before you open a CD, you should make sure you’re happy with the state of your emergency fund, and that you don’t have any near-term expenses you need the money for. But otherwise, now’s a really good time to put money into a CD.
Even if the Fed doesn’t lower interest rates in June, it’s expected to do so before the year is over. So either way, the sooner you open a CD, the greater your chances of snagging a truly excellent rate.
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