High-yield savings accounts and CDs are offering the highest interest rates that consumers have seen in years. This is mainly due to the inflationary environment and the benchmark interest rate hikes the Federal Reserve has implemented to help combat it.
While there’s no way to know exactly where interest rates will be in a few months or a year from now, we can look at projections to get an idea of where things might be heading. Here’s what the latest data is telling us.
Where will interest rates go from here?
To be perfectly clear, nobody knows for sure what direction interest rates will head next — not even the people who decide on monetary policy. But we can use some estimates to get a good idea of where they’re going.
First, the Federal Open Market Committee (FOMC), which is the policy-making arm of the Federal Reserve, issues its own economic projections four times per year. Its latest projections were recently released at the conclusion of the June FOMC meeting, and gave the following expectations:
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- Just one quarter-percent rate cut by the end of 2024. However, eight of the 19 voting members anticipate two rate cuts, while four don’t expect any.
- Four rate cuts (a total of 1 percentage point) in 2025.
- Another four rate cuts in 2026. This would bring the target federal funds rate from a range of 5.25%-5.50% currently to 3.00%-3.25% by the end of 2026.
Another widely followed source of interest rate expectations is the CME Group’s FedWatch tool, which in simple terms tells us the interest rates that investors are pricing into the stock market. And this tells a bit of a different story:
- A median expectation of two quarter-percent rate cuts by the end of 2025.
- A total of four rate cuts by September 2025 (the latest meeting date projected by the tool).
So the key takeaway is that nobody knows for sure. But it’s important to point out that the general consensus is that the next interest rate movement will be downward. None of the 19 voting members of the FOMC are projecting benchmark rates to rise any further in 2024, and the FedWatch tool doesn’t see this as a realistic possibility, either.
What does this mean for your bank accounts?
The interest rates paid on bank deposit accounts such as savings accounts and certificate of deposit (CD) accounts are not directly dependent on benchmark interest rates. In other words, just because the Federal Reserve cuts the federal funds rate by 0.25% doesn’t necessarily mean your bank will lower its rates by the same amount.
However, it’s important to note that Federal Reserve rate moves and bank interest rates tend to move in the same direction. So, the most likely course of events is that the interest rates paid by your high-yield savings accounts and CDs will be slightly lower than they are now, but falling a little faster throughout 2025 and 2026. However, nothing is certain, and there are a lot of moving parts that could affect the future of interest rates.
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