Why 2024 will be ‘a very good year for savers,’ particularly with CDs

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Higher interest rates were good news in 2023 for savers who were able to earn the best rates on their cash in years.

Even with the possibility of looming rate cuts by the Federal Reserve, 2024 still stands to be a great year for returns on cash.

“Yields are going to move lower this year,” said Greg McBride, chief financial analyst at Bankrate.

“But it’s still going to be a very good year for savers — especially those that lock in now,” McBride said.

When to expect interest rate cuts

New York Fed President John Williams: Inflation is easing but policy still needs to be tight

Much of the Federal Reserve’s decisions from here will depend on inflation data. The latest read of the consumer price index was hotter than expected, with inflation up 3.4% over a year ago and still higher than the Federal Reserve’s 2% target.

Federal Reserve Governor Christopher Waller said on Tuesday that the central bank may take its time and move carefully with any future rate cuts.

Interest rate changes probably will not happen before June, McBride predicts.

‘Now’s the time to lock in’ CD rates

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Short-term CDs, which may have terms from three months to one year, may be poised to change more quickly, especially as the possibility of interest rate cuts comes closer, McBride said.

Top six-month and one-year CDs are currently providing annual percentage yields around 5.5%, according to Bankrate. Longer three-year and five-year CD rates are lower, with top rates of 4.75% and 4.6%, respectively.

One advantage of CDs is they provide a “risk-free return,” according to McBride, because they are covered by Federal Deposit Insurance Corporation insurance and require savers to go directly through a bank. However, savers may want to consider whether Treasurys, which are exempt from state and local taxes, may be a better deal, he noted.

An important caveat to consider is that the Federal Reserve’s anticipated rate decreases may not come to fruition, noted Boneparth. If the economy moves in another direction, the central bank’s strategy may change.

When a CD might not be the right choice

Before locking money in a CD, experts say it’s wise to consider whether that is the right place for your money.

If you need the money before the CD matures, you will have to pay early withdrawal penalties, noted Ted Jenkin, a certified financial planner and CEO and founder of oXYGen Financial, a financial advisory and wealth management firm based in Atlanta. Jenkin is also a member of the CNBC FA Council.

Consequently, you should have a liquid emergency fund before you lock any cash in a CD, he said. Experts generally recommend having three to six months’ living expenses set aside in case of a sudden loss of income or other unexpected event.

Top online savings accounts are still providing annual percentage yields over 5%, McBride noted. However, those rates are not guaranteed and may be subject to more fluctuations as the timeline for the Fed’s interest rate cuts becomes more certain.

Above all, it’s important to match your money allocations to the time horizon for your goals.

For big, long-term goals such as retirement, you still stand to earn the highest returns by taking more risk and putting your money in the markets, noted Boneparth.

“If you chose cash as your preferred asset class last year, instead of equities, you clearly missed out in a very big way,” Boneparth said.

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About the Author: Tony Ramos

Tony Ramos is a seasoned expert in business funding and real estate investment, with a remarkable journey spanning over 20 years. His expertise in flipping properties and implementing the buy-and-hold strategy has positioned him well in the real estate investment sector. Tony's profound understanding of financial strategies extends to teaching individuals and businesses how to become debt-free and leverage the power of LLCs for funding. For insights, mentorship, or collaboration opportunities, Tony can be reached at businessfundingnopg@gmail.com. Connect with him to unlock the potential of smart financial strategies and embark on a path to financial success and freedom.

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