Introduction
With the Federal Reserve aggressively raising interest rates in 2022, many consumers are curious where rates could go in the next 5 years. This detailed guide provides projections on future interest rates, including specifics on mortgages, savings accounts, credit cards, auto loans, and more through 2025.
What Factors Influence Interest Rates?
When estimating future interest rates, it helps to understand what drives rate movements. The Federal Reserve directly controls the federal funds rate, which is the basis for most consumer rates. The Fed raises this benchmark rate to curb inflation and cuts it to stimulate the economy.
Other factors like economic growth, inflation, unemployment trends, and currency values also impact interest rates. Global factors and investor demand for US Treasurys also influence rate direction. Historical data provides clues to modeling future rate cycles.
Federal Reserve Forecasts Through 2025
The Federal Reserve provides periodic forecasts for where they see the federal funds rate moving based on current economic conditions. In September 2022, they projected the federal funds rate:
- End of 2022: 4.4%
- End of 2023: 4.6%
- End of 2024: 3.9%
- End of 2025: 3.4%
This suggests the Fed expects to keep aggressively raising rates over the next year before easing back in 2024-2025. These forecasts influence consumer rate projections.
Projected Mortgage Rates in 5 Years
Mortgage experts forecast 30-year fixed mortgage rates in the 5.5% to 6.5% range by 2025, up from about 6% at the end of 2022. Some economists see rates going higher if inflation persists. Given rate history, 30-year mortgages above 7% in 2025 are unlikely but possible in a worst-case scenario.
Credit Card Interest Rate Projections
Average credit card interest rates currently sit around 18%. Issuers are likely to raise variable APRs on cards in tandem with Fed rate hikes. Expect credit card rates around 20% by 2025, with premium cards charging over 25% APR. Consumers with good credit should secure low fixed-rate cards before broader increases hit.
Auto Loan Interest Rate Predictions
Auto loan rates stood at around 5.5% on average at the end of 2022 but are projected to go higher. Edmunds forecasts average used car loan rates between 8% and 13% in 2025 given rising Fed rates. New car loans could see average rates climbing to 6% or more by 2025. Consumers may accelerate purchases to lock in lower financing.
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Savings Account and CD Rate Outlook
As rates rise across lending products, the yields on deposit accounts are forecast to rise as well. Expect 5-year CD average rates between 4% and 5% in 2025. Top high-yield savings accounts could offer over 3% APR. Money market accounts may yield over 4%. This gives savers a chance to lock in substantially higher risk-free returns.
How High Could Interest Rates Go in the Next 5 Years?
The Federal Reserve projects rates reaching 4-4.5% by 2025, up from under 0.25% in 2022. Some economists predict rates climbing above 5% in the next few years before falling back. Sudden rate spikes are unlikely, as the Fed tends to be gradual. Still, borrowers should be prepared for interest rates at 5-year highs.
What Will Interest Rates Be in 2025?
Expert projections put average rates in 2025 around:
- 30-year fixed mortgage: 5% to 6%
- 15-year fixed mortgage: 4.5% to 5.5%
- Savings accounts: 2% to 3%
- Money market accounts: 2.5% to 3.5%
- Certificates of Deposit: 3.5% to 4.5%
- Auto loans: 6% to 8%
- Federal student loans: TBD based on 10-year Treasury rates
These forecasts provide insight for consumers making borrowing and investing decisions in the coming years.
What are the projected interest rates in 5 years?
The best interest rate on a 5-year CD is typically offered by online banks and credit unions seeking new deposits. Top rates as of late 2022 are around 4% APY. This gives savers a low-risk way to lock in yields above inflation for a 5-year term.
What is the Average 5 Year Interest Rate?
Currently, in 2022, 5-year CD average interest rates are averaging about 3.5%. Over the last 52 weeks, average 5-year CD rates have been:
- Low: 0.27% APY
- Average: 0.60% APY
- High: 3.98% APY
Savers can shop around for 5-year CD rates well above these norms. Expect continued rate increases in 2023 and beyond.
The Takeaway
Interest rates are expected to rise significantly over the next 5 years, with projections putting mortgages over 6%, auto loans near 8%, and credit cards above 20% by 2025. Savers also benefit from higher yield projections for savings products. Consumers should factor rising rates into major financial decisions and lock in favorable fixed-rate loans in the near term before broader hikes hit.
In other related article, Best 0% Interest Credit Cards with 0% Intro APR Period Until 2025
