From Time:

The latest news from the Federal Reserve suggests that the aggressive fight against inflation is winding down. This change will ultimately impact the interest rates on deposit accounts such as certificates of deposit (CDs), high-yield savings accounts, and money market accounts.

CDs have increased in popularity due to high APY rates. Some banks and credit unions have offered promotional rates as high as 6% or 7%, though these rates often come with strict eligibility criteria. Despite this, the best CD rates currently available are still above 5% — rates not seen in decades.

Experts agree that these rates are returning to a level of normalcy and that the low rates of the past 15-17 years were abnormal. They say not to get used to the high APYs on CDs and savings accounts, as future changes are expected.

The Federal Reserve is expected to freeze rates for the near future and start cutting them later this year. When this happens, APYs on CDs and other deposit accounts will also decrease.

The Federal Reserve does not directly control the APY your bank gives you. Instead, it controls the federal funds rate, which financial institutions use as a benchmark for setting interest rates on loans, credit cards, and deposit accounts. The Fed’s interest-raising spree is expected to come to an end due to declining inflation.

CD rates rise and fall in tandem with the federal funds rate set by the Fed. Investors overwhelmingly expect the Fed to keep interest rates the same in January, with a potential rate cut in March. CD rates are expected to stay the same in the immediate future, but could decrease when the Fed decides to cut rates, which experts believe will occur later this year.

Before investing in a CD, consider whether it makes sense for your situation. Remember that CDs tie up your cash for specific periods of time. Also, build up an emergency fund in a savings account before investing in CDs. Financial experts recommend locking in a CD rate now, as the Fed is expected to cut rates later this year. Now is a good time to lock in a rate, as short-term CD rates are trending higher in the 5% range.

Advisors recommend considering CD laddering, a strategy to mix up CD term lengths, to allow for liquidity and availability of funds. This may provide a blended rate that is close to the best available rate while still offering some flexibility.



Read more: Best Time to Buy a CD in 2024: Why High APY Won’t Last