The Federal Reserve’s announcement on interest rates came as no surprise today — but it did release its quarterly cues from the Fed, which indicate where savings and CD rates are headed for the rest of the year and into 2024. For CD consumers thinking about when to lock in a higher rate and which certificate duration to choose, any signals from the Fed are worth considering. So let’s look at what we learned.
What the Fed’s 2023 Expectations Mean for CD Rates
What the Federal Reserve does to the federal funds rate has a direct impact on the interest banks and credit unions are willing to pay for savings, money market, and certificate of deposit (CD) accounts. So when the federal funds rate increases, so do bank rates. The same is true when the Fed cuts its benchmark rate.
Today’s Federal Reserve action was inactive. As widely expected, the central bank kept the federal funds rate on hold after recently raising it on July 26. In the past 13 meetings – since March 2022 – the Fed has raised its benchmark rate 11 times. That brings the total increase to 5.25% so far, and takes the Fed rate to its highest level since 2001.
But once every three months, the Fed’s rate-setting committee releases some more “behind-the-scenes” information, including the much-anticipated “dot plot.” This chart represents each committee member with a score (no names included) and uses the score to show where each member’s federal funds rate will be at the end of 2023, 2024, and so on.
In the scorecard released today, we found that two-thirds of Fed members (12 of 19) want the benchmark rate to rise once in 2023, with the rest calling for a 0.25% increase. All of the remaining seven members instead believe the rate will remain unchanged throughout the year.
If the majority is right, that means another rate hike on November 1 or December 13. This may also push CD prices up a bit. It’s also true that if the increase is widely expected, some banks and credit unions may raise rates ahead of the Fed’s announcement.
But be warned: these are just predictions based on what the Federation members know now. The economic landscape can change quickly, which means the Fed can deviate from its previous forecasts.
What does the Fed predict for 2024?
In the year What we can glean from the dot plot about the direction of rates in 2024 is a bit puzzling given the far-off time horizon. The biggest point of agreement among the members of the federation is There will be price cuts in 2024. About 70% of committee members (13 of 19) believe the federal funds rate will decrease by the end of 2024. The reduction of their project varies between 0.25% and 1.00%. The average is expected to decrease by 0.50% in 2024.
The reason this forecast is slightly less concrete than the 2023 forecast is that the dot plot does not convey any price change periods outside of the calendar year. So while it looks like one or more rate cuts will be implemented in 2024, the scorecard gives no indication of which cuts we can expect from next year’s eight meetings.
What this means for CD buyers is that you will probably have a fair period of time, during which rates stabilize and you can choose when to move CD-buying. But just as a Fed rate cut may be on the horizon, rates will begin to soften, and mostly in in advance A proper reduction of the federation.
Advice for CD consumers
With rates already at record highs, CD consumers are in a good position. Although it is true, CD standards can A little bit higher, when they’re up more than five percent, they probably hit another quarter point and don’t have to go much higher. That means you have little to gain by trying to time the perfect CD peak — and the gamble you could lose if rates drop before you wait might not be worth it.
The smartest advice is to carefully decide what your ideal duration is and shop around to choose the best CD for that term. Right now, the top deals in our daily rankings pay 5.80% API, while 20 CDs pay the lowest 5.65% API. So you have many options.
Disclosure of collection method
Each business day, Investopedia tracks rate data from more than 200 banks and credit unions that offer CD and savings accounts to customers nationwide and determines daily rates for the highest-paying accounts. To qualify for our listings, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account’s minimum initial deposit must not exceed $25,000.
Banks must be present in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don’t meet other eligibility criteria (such as living in a certain area or working in a certain occupation), credit unions don’t have a donation requirement of $40 or more. For more on how we choose the best rates, read our full methodology.