Will CD Rates Drop in 2024? Here's What We Know

When inflation started surging in 2021 and continued into 2022, the Federal Reserve, which is tasked with controlling monetary policy in the U.S., knew it had to do something. That something took the form of implementing interest rate hikes that drove the cost of borrowing up for consumers across a range of loan products, from mortgages to auto loans to personal loans.

But those rate hikes also had a silver lining. For months now, people with extra cash on hand have been able to benefit from higher savings account and CD rates.

Meanwhile, the Fed has talked about cutting interest rates in 2024 in response to cooling inflation. And that has the potential to drive the cost of borrowing downward. But what about CD rates? Will they drop or hold steady?

Inflation is the big wild card factor

The Federal Reserve has long maintained that it likes to target an annual inflation rate of 2%. In March, however, inflation was measured at 3.5% annually as per that month's Consumer Price Index (an index that tracks changes in the cost of consumer goods and services). And that was an uptick from February.

Since inflation isn't cooling as quickly as the Fed would like, there's now a question as to whether interest rate cuts are going to happen this year. In a recent discussion, Fed Chair Jerome Powell was quoted by CNN as saying, "The recent data have clearly not given us greater confidence and instead indicate that it's likely to take longer than expected to achieve [2% inflation]."

As such, it's not looking like interest rates are going to fall anytime soon. And even if the Fed moves forward with rate cuts, based on Powell's commentary, it looks like those cuts could be a ways off. If they don't happen until the fourth quarter of the year, CD rates might largely hold steady for the remainder of 2024.

Lock in rates soon if you're considering a CD

If the Fed decides to put off its rate cuts, CD rates should manage to hold steady for longer. At the same time, though, the Fed is pretty unlikely to raise interest rates this year unless upcoming inflation reports contain truly shocking data.

Because of this, if you're considering opening a CD, you should get moving while rates are still high. Figure out what CD term is right for you, and then look at offerings from different banks to see which one has the most attractive rate and terms.

Another thing you may want to do is set up a CD ladder to give yourself more flexibility with your money. Let's say you have $2,000 to put into a CD today. One thing you may want to do is split that sum into four $500 CDs and then open a 3-month CD, 6-month CD, 9-month CD, and 12-month CD.

Another option, if you're confident you won't need your money for a long time, is to open a long-term CD -- say, one with a 48- or 60-month term. You may not get as high a rate on a longer-term CD as you will with a 6-, 9-, or 12-month CD. But since CD rates are expected to fall at some point, you have an opportunity to lock in a great rate on your money that soon enough may not be available for years.

All told, CD rates may or may not drop in 2024, depending on what the Fed does. Chances are, we don't see an initial interest rate cut until at least the third quarter of the year, and possibly not until the fourth. So there's still ample time to snag a great rate on your money.