Certificates of deposit are investment vehicles that attract people looking for a safe haven for their cash in an uncertain economic climate. CD rates typically track the federal-funds rate, which is currently 5.25% to 5.50%. Right now, inflation is high, but unemployment is low. And even though prices are high, retail sales were stronger than expected in July, helping douse fears of an imminent recession.<\/p>\n
The Federal Reserve raised its benchmark rates at 11 of its past 12 policy meetings. \u201cDuring the past 18 months of rising rates, it was relatively easy to anticipate Fed rate hikes, because inflation was very high,\u201d said Dan Geller, a behavioral economist based in San Francisco. \u201cThe next 12 months are going to be much more complicated and challenging.\u201d<\/p>\n
Once the Fed is convinced that inflation is inching towards its 2% target rate, it\u2019s likely to practice a \u201cwait and see\u201d stance for at least six months to ensure that inflation does not resurface, he said. Assuming that the Fed will halt hiking the funds rate in the fall of 2023, it will be the spring or summer of 2024 before rates could start to recede, Geller added.<\/p>\n
The yearly rate of\u00a0inflation <\/em>rose to 3.2% in July from 3% in the prior month, the latest consumer price index showed earlier this month. It marked the first increase in 13 months. Even though CPI is still off the Fed\u2019s 2% target, it\u2019s less likely to hike rates at its next policy meeting in September, most economists say. In fact, financial markets put the odds close to zero.<\/p>\n \u201cCD rates are probably at or near their peak,\u201d said Ted Rossman, a senior analyst at Bankrate. \u201cAccording to the CME FedWatch Tool, investors\u2019 best guess is that the Fed is done raising rates. There\u2019s a decent chance we could get one more quarter-point hike, but unless something really goes sideways with inflation, we\u2019re at or very close to the end of this rate-hiking cycle.\u201d<\/p>\n The average yield on a one-year CD is 1.86%, and on a five-year CD, it\u2019s 1.28%, Rossman said. But the highest-yielding accounts are offering 5.25% for a one-year CD from UFB Direct \u201cIf you\u2019re a retiree who\u2019s drawn to CDs for their safety, perhaps hedge your bets against interest-rate risk and open a CD ladder,\u201d Rossman said. \u201cBuy one-, two-, three-, four- and five-year CDs now, so that you have one maturing every year, and then reinvest by buying a new five-year CD every time that happens. It\u2019s unusual that one-year CDs yield more \u2014 in many cases \u2014 than five-year CDs.\u201d<\/p>\n <\/p>\n \n \u201c<\/span>\u2018CD rates are probably at or near their peak.\u2019\u201d<\/span>\n <\/p>\n So what will that mean for CD rates?\u00a0<\/h2>\n
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\n and 4.65% for a five-year CD from First National Bank of America.<\/p>\n
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