Will CDs Still Make Sense in 2025?

During 2022 and 2023, the Federal Reserve raised interest rates 11 times to help slow the pace of inflation. Unfortunately, higher interest rates have been harmful to consumers in some ways since they've made loans and credit card balances more expensive.

But those interest rate hikes have also had a silver lining. These days, savings accounts are offering generous interest rates for people with money in the bank. And CD rates are also the highest they've been in many years.

But the rate you can get on a CD today may not be the rate you're able to snag come 2025. And that raises the question: Will CDs still make sense to open next year? Or is the window to open a CD really closing soon?

CD rates should remain fairly attractive in 2025

The Fed's interest rate hikes have led to a situation where many CDs are paying upward of 5% right now. Come 2024, that may not be the case.

Just as the Fed raised interest rates when inflation soared, the central bank is expected to start cutting interest rates now that inflation has cooled. While we don't know exactly when the first of those rate cuts will happen, the Fed has signaled that it's looking to cut rates in 2024.

Because of this, the CD rates savers are seeing today may not be available come 2025. But that doesn't mean CDs won't still be worth it in the new year.

Remember, the Fed raised interest rates to where they are today over a period of more than a year. Similarly, the Fed's interest rate cuts are not expected to be overly drastic, but rather, gradual.

What this means is that come this time next year, you may not be able to sign a 1-year CD at 5% (or slightly more) like you can today. But it's possible that you'll be able to lock in a 1-year CD at 4.5%, or 4.25%. That's still a pretty good deal considering that you're getting a risk-free return, provided you stick to an FDIC-insured bank and limit your deposit to $250,000 ($500,000 in a joint account).

Act quickly if you can

While CDs will most likely continue to make sense in 2025, if you want to get the best rate on your money, the time to act is now. The Federal Reserve's next scheduled meeting of 2024 is set for June 11 and 12. It's unclear as to whether the Fed will be ready to cut interest rates at that point or wait a bit longer.

But once the Fed implements its first rate cut, the rate on CDs is apt to start trending downward. And while that may not happen to such an extreme degree, it's still a wise idea to capitalize on today's CD rates if you can.

So rather than throw a few thousand dollars into home renovations this month or go out and buy new furniture, you may instead want to consider using your spare cash to open a CD while rates are still around 5%. However, if you don't have the funds on hand to open a CD right now and you don't expect to be in that position until 2025, know that you should still have a prime opportunity to lock in a great rate.