Certificates of deposit: 3% APY or higher
The most competitive rates on CDs for three-month to one-year terms remain above 4% annual percentage yields, with the best long-term CDs (three- to five-year terms) above 3.50%, according to NerdWallet analysis in mid-December 2024.
For instance, he predicted the national average for savings accounts will be 0.35% at the end of 2025, but top-yielding offers could stand at 3.8% by year-end. Top-yielding 1-year CDs could pay about 3.7%, while five-year CDs may pay 3.95% by the end of 2025, McBride forecast.
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The National Association of Home Builders expects the 30-year mortgage rate to decrease to around 6.5% by the end of 2024 and fall below 6% by the end of 2025, according to the group's latest outlook.
Should I open a CD now or wait? It might be a good idea to get a CD now, since rates are expected to drop in the future. "If they want to get in the market for a CD, now might be the better time to lock in that higher yield, so they're shielded — at least for the near term — as rates continue to drop," says Stroup.
In 2024, three Federal Reserve rate cuts spurred declining yields on many deposit accounts, although savers were able to benefit from locking in strong yields on certificates of deposit (CDs). While yields on competitive CDs are expected to drop further in 2025, they're also expected to continue to outpace inflation.
Yes, you can get 6% on a CD now. As of January 10, 2025, the Financial Partners Credit Union is offering 6.00% APY on their CD rates for 8 months. The minimum deposit is $1,000.00, up to a $5,000 maximum. Check out the latest CD rates from over 400 banks and credit unions.
However, interest rates predictions are difficult as any further cuts depend on factors such as what happens with inflation. So predictions will have to be revised. For example, in January 2024, Capital Economics forecast that interest rates would be reduced to 4.00% by the end of 2024.
Despite an overall reduction in borrowing costs over the past two years, the 30-year mortgage rate recently moved up from a little above 6% in September 2024 to closer to 7% in January 2025. That contrasts with longer term mortgage rates holding at historically low levels of between 2% and 3% for much of 2020 and 2021.
CD account interest rates will drop
After all, the Federal Reserve lowered its benchmark rate three times in 2024, and many analysts expect there to be at least two more Fed rate cuts in 2025.
2026: 2.9% 2027: 2.9% (according to Federal Reserve Bank members and presidents, the median projection for rates after 2026 is 2.8% with a range of 2.4% to 4.9%)
You'll see money market account rates drop at financial institutions when the Fed cuts rates and rise when the Fed raises rates. The Federal Reserve cut rates in December 2024. This followed rate cuts in November 2024 and September 2024, for a total cut of 100 basis points, or 1.00% of interest.
After 14 months of stagnancy, the Federal Open Market Committee (FOMC) lowered the federal funds rate three times in 2024, ending the year with a target range of 4.25% to 4.50%, the lowest since February 2023.
Expert Projections of Interest Rates in the Next Few Years
According to the St. Louis Fed, interest rates in the coming years are expected to be: 2025: 3.4% 2026: 2.9%
Projected Interest Rates in the Next Five Years
ING's interest rate predictions indicate that in 2024, rates will start at 4%, with subsequent cuts to 3.75% in the second quarter, 3.5% in the third, and 3.25% in the final quarter. In 2025, ING predicts a further decline to 3%.
The fed funds target rate is now set at 4.25% to 4.50%. The Fed held rates at 5.25% to 5.50% from July 2023 to September 2024. Between March 2022 and July 2023, the Fed raised rates eleven times, from near 0%. Source: U.S. Federal Reserve, December 18, 2024.
Which bank gives the highest interest rate on FD? As of 2024, Canara Bank offers the highest interest rate of 7.25% for 444 days.
At the September 2024 Federal Open Market Committee (FOMC) meeting, the Federal Reserve (Fed) lowered interest rates by 50 basis points, easing monetary policy for the first time in four years due to progress on the Fed's dual mandate. This lowers the interest rate target to a range of 4.75% to 5%.
Right now, there aren't any financial institutions offering 7% interest on a CD. However, California Coast Credit Union is offering a 5-month Celebration Certificate with a 9.50% APY. The credit union's membership eligibility requirements are limited to people who live or work in San Diego or Riverside counties.
While longer-term CDs may tie up your funds for years, a 6-month CD allows you to access your money relatively quickly. If you suddenly need your $5,000 for an emergency or a more lucrative investment opportunity arises, you won't have to wait years to access your funds without incurring hefty penalties.
For example, a $10,000 deposit in a five-year CD with 3.50% APY would earn around $1,877 in interest. The same CD with a 1.50% APY would earn around $773 in interest, and the same CD with a 0.01% APY would earn only $5 in interest.