The Federal Reserve kept a steady hand on interest rates at its latest meeting, but banks are already dropping yields on certificates of deposit. Astute rate shoppers can still find a few offering rates above 5% however. Policymakers reaffirmed their expectations for three quarter-point rate cuts before 2024 is over, even as they maintained rates at a range of 5.25% to 5.5%. However, banks are already preparing for the move by becoming a little less generous on what they pay for deposits. “The pace at which banks can bring down their deposit costs throughout 2024 will be an important driver of net interest income outlooks across our coverage universe,” wrote Morgan Stanley analyst Betsy Graseck on Monday. “Deposit pricing competition has been decelerating as banks position for the Fed to begin cutting rates at some point in 2024.” To that end, the average highest rate paid by banks under Morgan Stanley’s coverage came down by four basis points in the first two weeks of March. Policy and deposits Even as banks dial back their CD yields, today’s products have come a long way from where they were as the Fed began its rate hikes in March 2022. Back then, six-month CDs had an annual percentage yield of 0.22%, and that has since climbed to 3.298% as of the week of March 15, according to LendingTree. For now, select banks are offering competitive annual percentage yields on 12-month CDs, with Bread Financial touting an APY of 5.25% and LendingClub offering a yield of 5.15%. You may also be able to find attractive yields if you’re willing to look for CDs with odd time frames. Consider that while American Express will pay an APY of 4% on its 12-month CD, it will pay 4.75% on the 11-month instrument. Capital One ‘s 12-month CD has a yield of 4.9%, but purchasers of the 10-month offering can earn 5.1% APY. Though CDs may be a solid place to park funds you’ll need within a short period of time, resist the urge to hide out in cash. That’s because as rates come down, bonds will see a pop in prices and dividend-paying stocks could be an even sweeter deal for income investors. Further, investors may not want to miss this historical rally for the major averages, with the S & P 500 , the Nasdaq Composite and the Dow Jones Industrial Average all recently closing at records. In the long run, equity returns are the best way for investors to keep up with inflation, while cash will ultimately fall short.
