​​Prediction: CD Rates Are About to Fall

Interest rates have been high for the last couple of years, which has been great for savers. Many Americans have locked in CD rates of 4% or 5%. Those are the highest saving rates in the past couple of decades. But they won't last forever. In fact, they are already starting to fall slightly.

The Federal Reserve pushed up rates in an attempt to slow the economy and get inflation back under control. Now, with unemployment rising and inflation cooling, many experts believe a change is imminent. Here's what that means for your CDs and savings -- plus some moves you can make to ensure your money keeps working for you.

Why CD rates are about to fall

Many rates that impact our lives, such as CDs, savings accounts, loans, credit cards, and mortgages, are influenced by something called the federal funds rate. When the Federal Reserve cuts this rate, CD rates will fall. Indeed, some banks are already reducing rates in anticipation of the Fed's decision.

If you visualize the economy as a car moving down a hill, rates are essentially the Federal Reserve's brakes. When the car is moving too fast, it increases rates to slow things down. As we start to slow, it eases its foot on the rate brakes to allow the economy to roll again. Federal Reserve Chair Jerome Powell seems to be readying to take his foot off the brake a little.

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Speaking after the Fed's July meeting, Powell said a rate cut could be imminent, assuming various conditions continue. Those include inflation trending downward and the job market steadying. Per the Bureau of Labor Statistics, July unemployment hit 4.3%, its highest in three years. "I would think that a rate cut could be on the table at the September meeting," said Powell.

The Fed will meet on Sept. 18 and has two other meetings planned before the end of this year. Some experts predict it will cut rates at all three meetings, but that remains to be seen. It seems almost certain that rates will fall -- the question is by how much and how quickly.

Three moves to make before rates fall

It's one thing knowing that rates will fall, and quite another playing it to your advantage financially. Think about how lower rates might impact your finances, particularly any savings or debts. The trick is to lock in high savings rates now and ready your credit score to potentially borrow at more favorable rates.

1. Lock in a high CD rate if you still want to

The best -- and worst -- thing about most CDs is that you lock your cash away for a fixed amount of time. If you might need that money urgently, opening an accessible high-yield savings account may make more sense. If we're talking about money you won't need for a couple of decades, you will likely get a higher rate of return by investing it in the stock market.

If you have cash that you don't need immediately and don't want to tie up for the long term, shop around for the best CD rate today. Let's say you put $2,000 into a 2-year CD paying an APY of 4.80%. That rate won't change, and you'd earn a return of almost $200.

Once the Fed starts to cut rates, those high APYs will not be on the table. Take advantage of them while you can.

2. Watch mortgage rates

If you've been delaying buying a house because of high mortgage rates, the coming months could bring good news. It is hard to predict how much mortgage rates may fall, but they may finally be moving in your favor. That said, lower rates aren't going to be a magic affordability bullet. Rate changes could trigger an increase in buyer demand, which could push home prices up.

There's no right or wrong move here. If you've found a place you can afford, you might want to buy and look to refinance further down the road. If current rates have priced you out, use the extra time to build a down payment, improve your credit score, and position yourself to move when rates shift.

3. Pay down credit card debt

It is great to earn interest of 4% or 5% on your savings balance, but paying rates of around 25% on a credit card balance can be devastating. Worryingly, data from the Federal Reserve Bank of New York shows delinquencies are on the rise.

If you carry a balance on your credit card, don't wait for rates to fall to start paying it down. A high balance can translate into a high credit utilization rate, which hurts your credit score. Any missed payments will ding your score further. Your credit score will be important if you want to access competitive loans once rates fall.

Plan for lower CD rates

Barring a dramatic economic change, it seems certain that the Fed will cut rates in September. If you haven't yet made the most of today's high CD rates, time is running out. More widely, think about how lower rates will impact your finances and what moves you can make to prepare.