Since March 2022, the Federal Reserve has been raising interest rates to slow inflation. That’s caused a world of upheaval for borrowers who are now facing higher interest rates on everything from credit card balances to personal and auto loans.
The one silver lining, though, is that higher interest rates are benefitting people with money in savings accounts and CDs. But will that continue into 2024?
Without a crystal ball, we can’t predict what’s in store for banking with certainty. But here are a few probable scenarios.
1. Savings account rates will remain competitive but fall as the year goes on
Right now, it’s possible to score well above a 4% APY on a high-yield savings account. But will that be possible throughout 2024? Maybe, but it’s not certain.
The Fed is expected to cut rates in 2024 if inflation continues to cool. That could result in lower interest rates for savers with money in the bank.
That said, savings account rates will likely remain competitive next year. So if you need a good place for your emergency fund, a high-yield savings account will still be a wise choice, as you can earn interest while keeping your money safe. But don’t be surprised if you don’t earn quite as much interest on your savings in the new year as in 2023.
2. Short-term CDs will be attractive
Like savings account rates, CD rates are competitive right now following the Fed’s actions. And chances are, that will still hold true in 2024.
But banks may be more willing to offer higher rates for short-term CDs than longer-term CDs in 2024 in anticipation of broad rate cuts. So you may find that you’re able to earn more on a one-year CD than on a five-year CD.
3. Long-term CD rates could drop more substantially
Banks commonly reward savers who open long-term CDs with higher interest rates than shorter-term CDs. But we may see the opposite in 2024 due to projected rate hikes from the Fed.
This isn’t to say that opening a longer-term CD won’t make sense in 2024. But we could end up seeing lower rates next year than the rates that are available for five-year CDs today. So if you’re interested in opening a five-year CD, you may not want to wait until the new year, but rather, take action in the coming weeks.
All told, there’s a good chance that banks will be able to continue to offer attractive interest rates on savings accounts and CDs in 2024. But it’s good to have a sense of changes that might arrive as inflation continues to moderate.
Of course, that’s not guaranteed to happen, either. And if inflation picks up and the Fed is forced to raise rates in the new year, all of the above predictions could be a bust. But since that’s not expected to happen, you may want to assume the projections above are reasonably spot-on — and sock your money away accordingly.
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