The Federal Reserve isn’t saying it, but a lot of financial market observers are guessing that key interest rates will start falling this spring. When they do, CD yields will come down with them.
Before the numbers drop too far, how can you seize on what will probably be the highest returns for several years?
First, know that no one knows for sure when rates will peak. Some fortunate savers will catch returns when they are at their highest. The rest will have to be satisfied with either being too early or too late.
Right now, many CDs are offering great yields. On our website, you can see all current CD rates for both short- and long-term CD’s.
Usually, short-term CDs pay more than longer-term accounts. Why? The Fed boosted its key lending rate 11 times between July 2022 and the same month of 2023.
The total increase of 5.25 percentage points lifted short-term Treasury yields well above those on long-term securities. As of the end of February, the market yield on the 1-month T-bill was 5.53%. That on the five-year Treasury was a much lower 4.26%.
For the past seven months, the Fed has taken no action. Financial market watchers take that as a sign the board is more likely to decrease than increase its key rate. In what economists consider a normal interest-rate period, short-term rates are lower than longer-term ones. If they are correct, it is more likely that yields on CDs with terms of one year or less will fall first.
Now is an excellent time to examine your savings account balances and CD maturity dates. What is the best return on the cash you have now or will become available in the next month or so? How much money can you tie up in a short-term CD like that at Tropical Financial?
Start by reviewing your budget. Will you have significant expenses in the next three to six months? You can match the CD term to the bill you expect to receive for home improvement or credit card payments on a summer vacation.
Whatever you decide, don’t guess whether rates will rise or fall during 2024. No one has a crystal ball that tells them the right day, week or month to lock in a high CD yield. Use your best judgment based on your financial goals and needs.
