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There are many downsides to high interest rates, but one bright side is that high rates can make it easier to earn more money from your savings. For example, certificate of deposit (CD) interest rate. and other interest-bearing account types are closely tied to the federal funds rate. As a result, when the Federal Reserve raises the benchmark interest rate, most banks and credit unions raise rates on savings accounts, money market accounts, and CD accounts.
During the pandemic, the Fed lowered interest rates to near zero, and the APY on CD accounts also dropped. As of June 2021, the average 12-month CD rate it was only 0.12%. But from March 2022 to July 2023, the Federal Reserve raised interest rates 11 times, and in September 2023, the average APY for a 1-year CD shot up to 1, 78%, and some of the best CD rates exceeded 5.50%.
However, in the second half of 2024, the Fed lowered the benchmark interest rate several times, and CD interest rates fell once more, and many analysts expect the Fed to cut rates again rate in 2025. Given these expectations, is there a chance that CD rates could rise next year or will they fall further?
Find out what the best CD rates are available to you now.
Will CD interest rates rise again in 2025? The experts intervene
These recent changes have many people wondering what the new year holds for CD rates. To learn more about what the trends in CD interest rates could be in 2025, we asked several experts to weigh in with their opinions.
Yes, CD interest rates may rise again in 2025
MDRN Capital CEO Aaron Cirksena says CD rates in 2025 will largely depend on whether the Federal Reserve raise or lower interest rates.
“If inflation remains high or the economy continues to grow steadily, the Fed could hold or raise rates, which could raise CD rates,” says Cirksena. “But if the economy slows and rates are cut, CD yields could drop.”
However, the federal funds rate is one of several factors that influence CD rates. Competition between banks also plays an important role. When banks are looking to increase their deposits, they often raise the APY on high-yield savings accounts and CDs in hopes of attracting more customers. So no matter what happens with the economy, you should still be on the lookout for bonus CD deals.
“Watch them, it’s still a smart way to increase your return and keep your money safe,” added Cirksena.
Compare today’s best CD rates and start earning more interest today.
No, CD interest rates will not rise again in 2025
According to Robert Johnson, president and CEO of Economic Index Associates, CD rates are unlikely to rise in 2025.
“The outlook for CD rates is bearish, as the overwhelming sentiment among market participants is that rates will be markedly lower next year than they are today,” he says.
Although there is no perfect correlation between Federal Reserve interest rates and CD rates, the Fed strongly influences CD rates. CD rates generally move in the same direction as changes in the fed funds rate.
“My advice to CD investors is to prepare for lower rates in 2025,” Johnson says.
When is the best time to open a CD account?
CDs can be a good option for anyone saving for a short-term financial goal, such as a down payment on a house. They’re a low-risk investment, and because you’re agreeing to a CD-specific term, it’s a great way to keep your money out of sight until you’re ready to use it.
And unlike high-yield savings accounts, which have variable interest rates, when you open a CD, you lock in that rate for the life of the CD. CD terms it can vary from three months to five years or more, and if you withdraw the funds early, you will be affected by one penalty for early withdrawal. But if you leave the money for the entire term, you’ll get a guaranteed one-time return The CD comes of age.
The best time to open a CD account is usually when interest rates are high. Currently, the national average for a 1-year CD is 1.74%, but you can find APYs as high as 4.50% right now, depending on the term and other factors.
The bottom line
Whether or not CD rates will rise next year depends on a wide range of variables, and with so many unknowns looming, it’s hard to determine exactly what will happen over time. So, if you’re interested in opening a CD, this may be a good time to lock in a high interest rate. If you wait too long, those rates could drop next year if the Fed cuts interest rates.