The Federal Reserve's outlook for interest rates has become more complex as inflation persists, with the personal consumption expenditures price index rising to an annual rate of 4.1%, the highest since April 2023. This has led to a nearly 67% probability of a rate hike in September, according to CME Group FedWatch tool.
In response, banks are adjusting their deposit rates, with some reducing interest on high-yield savings accounts while increasing rates for CDs. Bank of America analyst Brandon Berman noted that the average yield on 1-year CDs has increased by 19 basis points quarter-to-date, with new money rates approximately 35 basis points higher than the group average.
Analysts from BTIG suggest that banks may be balancing slower loan growth with expectations of increased competition for deposits in the future. For investors looking for short-term savings options, several banks are offering competitive CD yields, including Bread Financial and Citi at 4%, and Popular Direct at 4.15%.
Other options include Synchrony with a 4% yield on 13-month CDs and Happen Bank offering 4.15% on an 11-month CD. However, investors should be cautious of penalties for early withdrawal when cashing in CDs