In the past couple of years, the Federal Reserve has been steadily increasing interest rates. However, in recent meetings, the Fed has decided to keep rates unchanged. This leads us to wonder what's in store for interest rates and how it will impact the returns on certificates of deposit (CDs), especially considering some CDs have been offering attractive annual percentage yields (APYs) of 5-6%.

According to experts we have consulted, it is likely that rates will start to decline towards the end of 2024, resulting in lower payouts on CDs. Greg McBride, chief financial analyst at Bankrate, advises that now is the opportune time to secure the best yields. Once the Federal Reserve conveys its intention to halt rate hikes, CD yields will begin to retract. The initial rate cut will then accelerate this trend. McBride further predicts that CD yields will gradually diminish throughout 2024, with the highest rates being available at the beginning of the year.

McBride emphasizes that the Federal Reserve's shift from raising rates in 2022 and 2023 to eventually cutting rates in 2024 will be the primary driver behind changes in CD yields. The extent of this movement will depend on economic performance and whether the Fed needs to make aggressive rate cuts due to a recession or can slowly ease back under a more favorable economic scenario.

The CME FedWatch Tool, which measures implied expectations from debt markets, speculates that rates will be reduced in the second half of 2024, settling between 4% and 5% by next year. However, recent projections from the Fed suggest a more moderate decline by December. Unfortunately, without a crystal ball, it is difficult to provide an exact forecast for interest rates in 2024.

Bryan Johnson, a chartered financial analyst and CFO at, believes that by the second half of 2024, average CD rate offerings and the highest rates will begin to decrease. Given this forecast, it would be wise to consider acquiring a CD in the coming months to take advantage of current rates before they potentially decline.

Investing in CDs can be a prudent choice to secure fixed returns. However, given the anticipated changes in interest rates, it is crucial to act promptly to maximize your gains before the rates start to dip.

The Future of CD Rates

As we approach the end of the year, many are wondering what impact the Federal Reserve will have on CD rates. Certified financial planner Jim Hemphill at TGS Financial believes that the economy is not heading towards a recession and that core inflation is decreasing. This suggests that the Fed may keep rates steady for a longer period than anticipated. However, Hemphill still predicts that rates will be cut by late 2024.

While it's true that CD rates often trail interest rates, experts predict that CDs may not see a significant decline until the latter part of next year. With rates expected to remain stable in the near term, there is less urgency to rush into purchasing a CD immediately.

It's important to note that the Fed is not the sole driver of CD rates. Issuers have the autonomy to set the rates they want to pay. While the Fed funds rate can influence CD rates to some extent, banks often use higher rates as an incentive to entice customers away from competitors or reward their loyal customers, according to Bobbi Rebell, certified financial planner and founder of Financial Wellness Strategies.

Short-term CD rates are also influenced by the supply and demand of funds in the money market, according to Demissew Diro Ejara, associate professor of finance at the University of New Haven's Pompea College of Business. Various factors such as inflation expectations, monetary policy actions (such as changing the Federal Funds rate), fiscal policy, and economic activities can impact short-term interest rates. Currently, rates range from around 5% to 7% depending on maturity and financial institution.

Ejara adds that the OECD forecast indicates a decrease in inflation to around 3% by the end of 2024 and reaching the target rate of 2% in 2025. Unless economic activities slow down, Ejara believes that there won't be any further decrease in interest rates in the coming year.

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