There’s a reason why CDs have been a very popular savings option this year. For much of 2024, it was possible to lock in a CD at 5%. And even though rates have fallen slightly over the past month following the Federal Reserve’s September benchmark interest rate cut, many CDs are still paying. close at 5% today. This makes them a good option, as they were earlier in the year.

But in my opinion, I don’t think as many people will be lining up to open CDs in 2025. Here’s why.

1. CD rates will likely continue to fall

The Federal Reserve is not done cutting interest rates. The rate cut scheduled for mid-September will likely be the first of many.

But as the Fed continues to lower rates, CDs will start paying less. And there may come a time when savers say they’re not willing to commit to a CD if there’s minimal upside potential.

Our picks for the best high-yield savings accounts of 2024

American Express® High Yield Savings APY 4.00% Pricing information Annual percentage yield of 4.00% as of November 1, 2024 Member of the FDIC.	APY 4.00% Pricing information Annual percentage yield of 4.00% as of November 1, 2024	Min. earn $0
Capital One 360 ​​Performance Savings APY 4.00% Pricing information Check the Capital One website for the most up-to-date pricing. The Advertised Annual Percentage Yield (APY) is variable and accurate as of October 23, 2024. Rates are subject to change at any time before or after account opening. Member of the FDIC.	APY 4.00% Pricing information Check the Capital One website for the most up-to-date pricing. The Advertised Annual Percentage Yield (APY) is variable and accurate as of October 23, 2024. Rates are subject to change at any time before or after account opening.	Min. earn $0
CIT Platinum Savings APY 4.70% APY on balances of $5,000 or more Pricing information 4.70% APY on balances of $5,000 or more; otherwise, 0.25% APY Min. earn $100 to open an account, $5,000 for maximum APY Member of the FDIC.	APY 4.70% APY on balances of $5,000 or more Pricing information 4.70% APY on balances of $5,000 or more; otherwise, 0.25% APY	Min. earn $100 to open an account, $5,000 for maximum APY

How far will CD prices drop in 2025? This number is difficult to determine and depends on how quickly the Fed seeks to lower interest rates. And that will largely depend on the evolution of inflation. All things considered, many factors come into play.

But it wouldn’t be surprising to see CD prices drop between 2.5% and 3% by the end of 2025. It’s up to you to decide whether it’s worth committing to a one-time CD. such rate.

Remember, the average annual return of the S&P 500 over the past 50 years is 10%, representing strong years and weak years. Even though stock investments carry a lot more risk than CDs, if you have money that you are putting towards a distant goal, then it could pay off for you. open a brokerage account and use it to invest in stocks rather than opening a CD in 2025.

2. Borrowing rates should fall

CD rates and loan rates tend to move in the same direction. Right now, both are on the rise. As the Fed continues to cut rates, both will likely fall. But this could lead a large number of consumers to spend their money in 2025 rather than saving it.

For example, right now, rates for personal loans and auto loans are quite high. But if those rates fall in 2025, more people may be inclined to borrow money to finance purchases such as furniture, vacations, electronics and automobiles. And they may be willing to take money out of the bank to pay off these debts or make down payments if necessary.

Of course, you shouldn’t randomly borrow money in 2025 just because rates are lower. But if you’ve been saving for a specific major purchase — like a new car to replace your current, troubled vehicle — know that you might find yourself in a better position moving forward with that new vehicle. year. And in that case, it might make sense to use your money to meet a need — like replacing a car — rather than opening a CD.

Should you lock a CD now?

All told, I expect CDs to be less popular in 2025 than they are today. But what about today? Should we open a CD while the rates are still close to 5%?

The answer depends on your situation. If you are saving for a short-term goal, I recommend shop around for the best CD rate and open a CD before prices drop further. But for a long term goal, I would recommend creating a stock portfolio.

You also don’t want to tie up money in a CD that you might need for emergency fund purposes. So before considering a CD, make sure you have enough money set aside to cover at least three full months of essential bills.

Also remember that even if CDs become less popular in 2025, that doesn’t mean You I shouldn’t buy one. Rather, it is about being aware of reasons why CDs might become less popular, as they can impact your finances.