Looks Like CD Payouts Are Taking a Dive as Fed Rate Cuts Loom

Well, there’s some news for you: returns on Certificates of Deposit (CDs) are already on the downward slope. You know what they say, “When the going gets tough, the banks get going”… with their anticipations of the Federal Reserve clip-clopping their key interest rates later this year.

Why Are CDs Suddenly Trending?

Thanks to their high annual percentage yields (APYs) and the safe-bet image they have developed, CDs have been in the limelight lately. But folks, it appears the sun is setting on the days of CDs offering rates above 5%. A bunch of online banking’s big names, like Ally, Barclays, Discover, Marcus, Sallie Mae, and Synchrony, have all lowered their flags on their 12-month CDs. Sad, isn’t it?

Here’s a taste of it. Barclays’ 12-month CD now whistles a low tune of a 4.25% APY. Sallie Mae has also downgraded its APY from 5.5% to a not-so-overwhelming 5.25%. In the same tragic line, Discover, Marcus, and Synchrony have also cut off some meat from their CD rates. Russell Hutchinson, the CFO at Ally, revealed in their recent earnings call that they had hacked their CD rates twice already in January. Guess what’s coming in 2024? More cuts. Yikes!

Time to Hunker Down on Your CD Rate

You might want to consider safeguarding your returns. If you’re searching for an alternative to the risky game of stocks or bonds, and don’t mind playing it safe, consider Discover®️ CD. It might be what you’re looking for. So, roll up your sleeves folks, your CD account is just a click away.

Why Are CD Rates Taking a Hit?

Now, if you’re wondering why your CD yield is shrinking, it’s tied up with the federal funds rate, which is the baby of the Federal Reserve. When the Fed realized we were soaring high with inflation in 2022 and decided to clip our wings, that helped the APYs to rise across deposit products like CDs, savings accounts, and money market accounts. Good for us savers, right?

But the good times are fickle. Since the Fed’s battle against inflation is turning fruitful and consumer prices have calmed down, everyone is nodding that the central bank will be lowering its interest rates come 2024. Yep, it’s not a matter of “if” but “when” and “how much.” That’s just the way the cookie crumbles…

In 2024, the CME FedWatch Tool indicates that most investors are holding their breath for a cut in the Fed’s next meeting in March. However, in the world of banking, there’s a belief the cuts may not roll in until later in the year. Yet, many banks are jumping the gun by reducing APYs on CDs—making sure they lock up funds before a broader rate drop happens.

Time to Build Your Savings with CD?

A Discover®️ CD account might be your magic ticket to grow your savings for some of those financial goals. So why wait? Get in there and open your Discover CD.

So, Should You Lock Coming to a High Rate CD?

While the gong hasn’t quite rung on the timing front, there’s one thing everyone belting the same tune — Fed rate cuts are coming in 2024. That being said, CDs are certainly not for the faint of heart. You generally have to hold your breath and your money for the entire term (it could be a month or even go up to more than ten years). Otherwise, sorry mate, it hardly makes any sense.

If you get tempted to withdraw funds before the CD grows to its full glory, banks would pull your leg with early withdrawal penalties. That’s going to take away from the interest you’ve so laboriously earned. At times, these fees can seriously dent your delivery.

Because of such stern terms, CDs are usually a No-No for your emergency savings—they need to be ready for action in a jiffy when unexpected expenses come knocking.

Lawrence Sprung, the founder and wealth advisor at Mitlin Financial, suggested a strategy for savers who want to benefit from high CD rates while still having some wiggle room. He proposed CD laddering. This technique has you spreading your savings thin across CDs of different maturities—like 3 months, 6 months, a year, or even 5 years. The beauty of this? It gives you rates that are locked up at today’s levels, while allowing your wandering fingertips periodic access to part of your funds. Sounds perfect, doesn’t it?

“So you’ll have rates locked in,” assured Sprung. “You may get a blended rate that might not be the absolute best, but you’ll get close while maintaining some liquidity.”

Let’s Wrap Up

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And there’s more: Have a look at our list of the top contenders for the Best Banks in America for 2024. Also, get in the know about what’s happening around FAFSA delays and how they’re pushing back the college financial aid timeline. For those of you looking for an interesting read, check out our feature on how ‘Coast FIRE’ could be the antidote to early retirement saving burnout.

Why wait? Give your savings some wheels with a CD from Bread Financial today!