It’s never too late to open a CD.  The prices are still amazing.

It’s never too late to open a CD. The prices are still amazing.

Key Takeaways

  • Interest rates for certificates of deposit (CDs) reached a peak not seen in 20-plus years last fall, thanks to the Federal Reserve’s aggressive fight against inflation.
  • Although rates have come down a bit since then, you still have several options that allow you to lock in a rate between 4.50% and 5.75% for 3 months to 5 years.
  • It is very possible that CD rates will decrease this year if the Fed chooses to lower the benchmark rate in 2024.
  • Opening a CD today means that one of the stellar rates is now yours to keep for months or years to come.
  • Conversely, savings account rates will fall with any Fed rate cuts.

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The Best CD Rates Are Still Amazing

What you get in a savings account, money market account, or certificate of deposit is directly related to what the Federal Reserve does with the federal funds rate. And in 2022 and 2023, decades of high inflation will push the Fed to dramatically raise this benchmark rate to a total of 5.25% – raising it to the highest level since 2001. As a result, the rates you can earn on your cash in the bank have also skyrocketed, offering the best CD savings and returns we’ve seen in 20-plus years.

CD rates have retreated somewhat this winter. That’s because the Fed’s last rate hike took place in July 2023, and since then, the central bank has taken its foot off the gas as inflation cooled. After the meetings in September, November, and December, the Federal Reserve announced to hold the rate instead of further increase.

After rising in July, CD rates continued to rise for a while—into November for some CD terms. That brought the top national rate to peaks from 5.25% to 6.50% in the fall. But while record rates are now in the rearview, what you can get with any CD term is still amazing—with top rates ranging from 4.82% to 5.75% APY and many options paying 5.50% or many more.

Fed Moves May Push CD Rates Lower This Year

At the Fed’s December 13 meeting, more data was released on the committee members’ projections for the federal funds rate over the next three years. Called the “dot plot,” this report showed that nearly 80% of Fed committee members predicted at the time that the federal funds rate would be cut two to four times by 2024. The median forecast was three cuts this year. which amounted to 0.75%.

Any reduction in the federal funds rate will directly affect what banks and credit unions pay on high-yield savings accounts, money market accounts, and CDs. So when these rate cuts happen, the rates offered on deposit accounts will also start to drop.

However, the Fed’s estimates are the best guess at a point in time. In fact, the data released since the Fed’s dot plot—showing strong employment numbers and a slightly higher-than-expected inflation reading—could give the Fed pause on rate cuts. of this, which may delay reductions in the future.

The Fed’s next rate announcement will be made tomorrow. Although expected to announce another rate cut, financial markets will be closely analyzing the Fed’s language for any signals of when they will start lowering rates.

Moving Money from Savings to a CD Is Smart Now

With many options available for each CD term to earn at least 4.50% on long terms, and up to 5.75% on shorter terms, this is still a great time to move some of your save to a CD. While it’s likely that savings account rates will start to drop sometime this year, any money you lock into a CD will provide a guaranteed rate until the end of the CD’s term.

This means that you can gift your future self with a rate of more than 5% that lasts until 2026, or even 2027. Or you can enjoy a rate in the upper 4% range for the next four to five years—that will secure your rate until 2029.

If current projections about Fed rate cuts over the next two to three years come true, interest rates on the best high-yield savings accounts could fall from the 5% range to in the 2% or 3% range. And when that happens, you’ll be happy for a CD that still delivers 4-5%.

How We Find the Best Savings and CD Rates

Every business day, Investopedia tracks rate data from more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top ones. paid accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the minimum initial account deposit must not exceed $25,000.

Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don’t meet other eligibility criteria (for example, you don’t live in a or working in a certain occupation), we exclude credit unions whose donation requirement is $40 or more. For more on how we choose the best rates, read our full methodology.

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