CD Rates Could Change in 2025. Will They Still Be a Good Buy? | Global News Avenue

High annual percentage rates (APY) are driving unprecedented interest in certificates of deposit (CDs) in 2024, as many banks are offering interest rates of 5% or higher. But how will CDs fare in 2025?

There are no guarantees, but Best CD Rates It is likely to decline by 2025. Still, interest rates are likely to remain competitive for some time to come, but it’s always smart to keep a close eye on other options, such as high-yield savings accounts and brokerage accounts.

Why CDs are still worth buying

In 2024, many banks and credit unions are offering CD The interest rate exceeds 5.00%. Even though interest rates are expected to fall, CDs remain a great value to many consumers. Due to fierce competition in the banking industry, including many digital banks with lower operating costs, some institutions will continue to offer certificates of deposit with interest rates that are significantly higher than average. The best CDs often rival or beat other CDs Best High Yield Savings Account Interest Rates.

Unlike savings accounts, CDs allow you to lock in a specific annual interest rate for a specific period of time. This means that even if CD rates fall, you can lock in a relatively high rate today and keep it there for the entire term. This is not the case with savings accounts.

But there’s a catch with a CD – you have to maintain that interest rate, and in return, you have to keep the money in the account for the term. If you withdraw your funds early, you’ll often pay hefty fees Early withdrawal penalty.

Why deposit rates may fall next year

CD interest rates tend to follow federal funds rate: The interest rate at which banks lend to each other.

The Federal Open Market Committee (FOMC) adjusts Federal Reserve interest rates to manage inflation and stimulate the economy. In 2024, the FOMC will cut interest rates for the first time since 2022, and experts predict that interest rates will continue to be cut in 2024.

Therefore, CD rates are likely to continue to fall in 2025, but not as much as initially expected. The Federal Reserve’s recent scaled back previous forecast The rate at which the base rate falls. The federal funds rate was originally expected to be as low as 3.25% by the end of 2025; the updated forecast shows the rate will reach 3.75% by the end of the year.

Other savings tools to consider in 2025

In addition to CDs, other tools can help you increase your money and accumulate wealth 2025:

• High Yield Savings Account (HYSA): one high yield savings account Offers a higher-than-usual annual interest rate on your savings. Unlike term deposits, money in a savings account is more readily accepted; withdrawals are (usually) penalty-free, making them better suited for short-term goals and emergency funds. However, HYSA rates may fall in 2025 as the Federal Reserve cuts interest rates.
• Money Market Account (MMA): money market account Is an interest-bearing account that usually pays a higher annual interest rate than a savings account. As with savings accounts, cash is easier to get than money in CDs, but money market account rates are also likely to drop in 2025.
• brokerage account: For those with long-term goals, brokerage account Might be a good alternative to CDs. By investing in a portfolio of stocks, bonds, mutual funds, or exchange-traded funds (ETFs), you can earn higher returns than you can get from a CD or savings account. But to get better returns, you have to put your cash at greater risk.