With interest rates about to drop, savers will need to reexamine their investment strategies sooner rather than later.
Certificates of deposit (CDs) have been a saver’s delight as the Federal Reserve hiked its benchmark, short-term federal funds rate eleven times between March 2022 and July 2023 to 5.25% –5.5%, the highest level in more than 20 years, to contain inflation.
The Fed’s now widely forecast to lower rates when its policy meeting concludes on September 18, and financial institutions will quickly follow suit on their deposit rates, experts say.
“Assuming the Federal Reserve does lower interest rates, there are steps savers can still take to maximize their earnings if they make timely decisions about their savings,” said Mary Grace Roske, head of marketing for CD Valet, an online CD comparison site, in an email.
How fast and by how much could CD rates drop?
You’ve likely missed the chance to secure the highest rates. Banks have already begun cutting their deposit rates in anticipation of a rate cut, said Ken Tumin, banking expert at DepositAccounts.com, which tracks and compares savings rates.
The average one-year online CD yield as of Aug. 24 was 4.97%, down from this year’s peak of 5.35% in early January and 4.99% on July 24, DepositAccounts.com shows. Online returns generally are higher than those offered by brick-and-mortar shops.
Rates will likely slip further if the Fed begins a series of rate cuts, experts said.
Find the best: Best CD rates of September 2024
What should CD holders do?
Though CD rates are off their peaks, Americans can still lock in a solid return if they hurry, Roske said.
“They can go for a longer-term CD (to lock in rates) versus earlier this year when shorter terms were advised due to high rates,” Roske said.
While shorter-term promotional rates might be attractive now, longer-term CDs can provide better overall returns as interest rates drop, she said.
Her other tips include:
◾ Act quickly on maturing CDs.
“Savers shouldn’t be ‘asleep at the wallet’ if they have CDs coming due,” Roske said. Savers need to monitor their maturity dates and avoid automatic rollovers, which may lock in lower, less favorable rates.
Nearly $950 billion in CDs are set to mature at commercial banks by mid-October, according to an analysis of Federal Deposit Insurance Corp. data by The Financial Brand, a banking trade publication.
“And that’s the first and smaller wave of a coming maturity tsunami for time investments,” wrote James White, a banking consultant at Total Expert, for the trade publication. Some $2.5 trillion in bank time deposits and a record $8.9 trillion of government debt will mature by July, he said.