The Federal Reserve hiked interest rates seven times in 2022 in an attempt to combat inflation, a fight that has proved daunting. Continuing its hawkish stance in 2023, the Fed raised rates at the first two Federal Open Market Committee (FOMC) meetings of the year. However, there have been questions on whether the Fed will ease off the rate hikes for the remainder of the year. This also calls into question whether certificates of deposit (CD) rates will continue to rise throughout the year.
To get help with determining where CDs fit into your overall investment plans and what you might expect in terms of returns, consider working with a financial advisor.
Will CD Rates Continue to Rise in 2023?
When the Fed raises interest rates, banks tend to increase CD rates as well. But it is unclear for how long exactly the Fed will continue to raise rates.
In February this year, the Fed raised rates by 25 basis points to an adjusted 4.5% to 4.75%. And in March, the Fed raised rates again by another 25 basis points to an adjusted 4.75% to 5%. Indications point to more rate hikes in 2023. But experts are debating just how many.
During the March FOMC meeting amid Summary Economic Projections (SEP) suggesting the need for just one more rate hike this year, Fed Chair Jerome Powell suggested he will continue to raise rates if necessary but foresees “credit tightening,” a cut-back in bank lending that itself could help tame inflation and obviate the need for many more rate hikes.
Whether or not several more rate hikes happen in 2023, Powell did indicate that a rate cut is not in the Fed’s current plans for this year based on relatively slow growth in the economy, along with a gradual rebalancing of supply and demand in the labor market.
CD Rates Will Likely Increase Into the Second Half of 2023
With the Fed rate hike reaching 4.75% in February and then 5% in March, combined with Powell’s comments during March’s FOMC meeting, signs point to the Fed raising rates at least once more this year. And as we get near the midway point of 2023, CD rates are increasing as well. Some banks, as of this writing, are offering yields of 5% or higher on short-term CD rates.
Whether CD rates stay that high for the remainder of the year remains to be seen. But in the present, it may be an enticing option for those who want to deposit some cash in the short term and land a CD rate that has a high yield.
Deciding Which CD Rates and Terms Are Best For You
If you feel stuck as to where to put your cash and need to get a clearer picture of your options, speaking with a financial advisor can help you make a sound choice. An advisor can help you identify your savings goals and your risk profile. This professional can also help you go over the pros and cons of what comes with CD investing.
CD rates can offer terms ranging from six months to 10 years. Depending on your savings strategy, an advisor can help you remain disciplined not to touch your money in order to help you avoid withdrawal penalties.
Bottom Line
Many signs point to the Fed raising interest rates in 2023. On top of that, Powell doesn’t believe in cutting rates in the near future. That likely spells good news for those who want to take advantage of high CD rates in the present. However, the market can always change and cause the Fed to alter its course. A financial advisor can help you navigate your portfolio to reach your savings goals throughout 2023 and beyond.
Tips for Investing
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Whenever you’re considering specific types of investments then you may want to consider working with a financial advisor. An advisor can help you choose the right investments and make sure you’re on track to meet your financial goals. If you don’t have a financial advisor, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. Once you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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If you’re trying to determine what a potential return might look like on a CD or another investment, consider using SmartAsset’s free investment return and growth calculator.
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Source: finance.yahoo.com