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CD interest rates are high in 2024 — higher nationally, on average, than they've been in more than a decade, according to Forbes Advisor.
But great rates aren't the only thing to consider when trying to help your money grow. Sure, if you open a traditional CD now, you'll lock in your rate for the term of the CD, but you'll also lock up your money for that term.*
Whether a CD is worth it right now also depends on why you're saving money, how soon you need your funds and whether rates rise or fall in the next year or five years.
"In my opinion, right now is a great time to get a CD," said Scott Smith, head of BECU's deposit product strategy. Smith has served the credit union industry for 22 years. "But no one has a reliable crystal ball."
He explained that financial institutions consider potential moves by the Federal Reserve when determining rates. The Federal Reserve's lending rate "tells us the direction CDs are going."
It can be challenging to time the market and snap up the perfect savings tool at the perfect moment. We'll help you weigh the potential pros and cons of CD investing right now.
Why CD Rates are High in 2024
Right now, you may find higher-rate CDs with terms of just a few months.
Historically, long-term CDs — defined as 18 months or more — have been more likely to have higher rates than short-term CDs. For example, BECU's highest CD interest rate is on 12-month to 17-month CDs (at the time of publication). In 2024 and for the past year or so, Smith explained that we're in an "inverted yield curve," where the situation is reversed. Short-term CDs have higher rates than long-term CDs.
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60/40 Sample of rich text promo. Not a lot of copy should be placed here. Sample text linkWhy CD Rates are High in 2024
Right now, you may find higher-rate CDs with terms of just a few months.
Historically, long-term CDs — defined as 18 months or more — have been more likely to have higher rates than short-term CDs. For example, BECU's highest CD interest rate is on 12-month to 17-month CDs (at the time of publication). In 2024 and for the past year or so, Smith explained that we're in an "inverted yield curve," where the situation is reversed. Short-term CDs have higher rates than long-term CDs.
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50/50 Sample text for the rich text promo copy. Not a lot of copy should be placed here. Sample text linkHigher short-term rates suggest that many banks and credit unions expect the Federal Reserve to start cutting rates in June 2024. If so, financial institutions are likely to protect against paying interest on high-rate CDs long-term, after rates fall.
Often, these inverted yield curves can also indicate a future recession.
"A more normal yield curve helps create a stable rate environment with more predictable returns for members," Smith said.
How Do Current CD Rates Compare With the Expected Rate of Inflation?
As of March 2024, inflation over the past 12 months is about 3.2%, according to the Bureau of Labor Statistics Consumer Price Index. The average credit union CD rates are slightly lower or equal to inflation, according to the National Credit Union Administration. However, you can find CD rates featuring interest higher than inflation.
Fed chair Jerome Powell has indicated a target inflation percentage of 2% must be reached before the Fed will feel comfortable lowering their rates, Smith said. There's a widespread expectation that rates will lower in 2024 as inflation's peak seems to be subsiding and meeting Powell's requirements.
However, financial institutions want to retain the deposits, so CD rates may stay higher in 2024 — just slightly reduced by the end of the year. "Hence, that's why right now is the best time to consider a CD to lock in the presumed 'peak' of the market," Smith said.
Emily Rogers
(She, Her, Hers)
Contributor