If you're like me, you get a little thrill every time you snag a great deal or save money. It's a good feeling to sign a loan at 6.2% right before rates climb to 6.5%. Similarly, it feels awesome to stumble across a random supermarket sale that brings the cost of your favorite cereal down to $3.29 from the usual $4.99 per box.
Because I love getting the best deals in the context of financial products, I've been known to spend a lot of time researching certificate of deposit (CD) rates. I did that last year when I had some spare cash to put into a CD, and I've done it again this month.
During my research, I found some CD rates at a lesser-known bank that I'm pretty happy with. But I'm intentionally not chasing the highest rate this bank is offering for one big reason.
When it pays to give up the higher rate
A bank I already have a CD at is currently offering a 5.05% APY on a 12-month CD, versus a 4.50% APY for a 60-month CD. Trust me when I say that I'm really tempted to take the 5.05% and run with it.
While you'll find a number of 12-month CDs being offered at just above 5.00% today, I don't expect that trend to last much longer. So I know that if I want a CD at over 5.00%, I have to act quickly, and I'm probably looking at a 12-month term or something in that vicinity. However, the 60-month CD at 4.50% makes a lot more sense for my personal situation, even though it comes with a lower rate.
Right now, I'm aggressively trying to save for college because that milestone is not so far away for my oldest child. Since I have most of my college savings in stocks, I want to put some money into cash in case the stock market performs poorly in the coming years and I don't have time to ride out a downturn as tuition bills start to come due.
My aim is to put enough money into cash to cover two to three years of college tuition. This allows me that much time to ride out a stock market decline. It also explains why a 60-month CD at 4.50% makes more sense for me. I'd rather accept a slightly less competitive rate on my money but know that I'm still locking in a pretty decent rate for five full years. If I go with the 12-month CD, sure, I get 5.05% -- for now. But what happens in a year from now? Since I'm looking at a five-year goal, it makes sense to have my CD's term match that time frame.
It's a good time to open a longer-term CD
It's not easy to commit a chunk of money to a longer-term CD. But here's the thing: The reason CD rates are so high right now is because interest rates are up in general following the Federal Reserve's series of interest rate hikes that took place in 2022 and 2023.
The Fed is expected to start cutting rates later this year, though. Once a few of those rate cuts take hold, you may be hard-pressed to find a CD paying 4.50%, let alone 5.00%. So the way I see it, it also makes sense to open a 60-month CD now at a strong rate that's not the highest because that same rate may not be available for many years once the Fed starts to make a move.
To put it another way, yes, I'll lose out on a bit of interest in the next 12 months by choosing a 60-month CD over a 12-month CD. But all told, I'm confident I can earn more money in interest all-in with a 60-month CD than a series of five consecutive 12-month CDs based on where I think interest rates are going.
So again, if you're like me and enjoy getting the best deals, you may want to look past the numbers on your screen and instead consider the big picture. Forgoing a 5.05% APY in favor of 4.50% might seem like you're losing out at first. But in the long run, you could come out a serious winner.
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FAQs
CD Rates Forecast 2024
The CME FedWatch Tool, which measures market expectations for federal funds rate changes, shows that most experts expect rates to sit between 4.50% and 5.25% by December 2024. At its 2024 meetings, the FOMC held the federal funds rate steady at a target range of 5.25% and 5.50%.
Why have CD rates dropped so much? ›
Interest rates, including CD rates, typically fall during a recession. This is a consequence of the Federal Reserve lowering the federal funds rate in an effort to stimulate borrowing.
Should you break a CD for a better rate? ›
Paying an early withdrawal penalty could also make sense if your CD is earning considerably less than current interest rates. For example, if you have a long-term CD earning a 2% APY, and new CDs offer APYs in the 5% range, you should consider cashing out your long-term CD as it could mean earning 3% more on your cash.
Should I lock in a CD now or wait? ›
Unlike traditional or high-yield savings accounts, which have variable APYs, most CDs lock your money into a fixed interest rate the day you open the account. That's why if you suspect that interest rates will soon drop, it can be a good idea to put money in a CD to preserve the high APY you would earn.
Can you get 6% on a CD? ›
You can find 6% CD rates at a few financial institutions, but chances are those rates are only available on CDs with maturities of 12 months or less. Financial institutions offer high rates to compete for business, but they don't want to pay customers ultra-high rates over many years.
Where can I get 7% interest on my money? ›
Why Trust Us? As of June 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.
What is the biggest negative of putting your money in a CD? ›
Banks and credit unions often charge an early withdrawal penalty for taking funds from a CD ahead of its maturity date. This penalty can be a flat fee or a percentage of the interest earned. In some cases, it could even be all the interest earned, negating your efforts to use a CD for savings.
When should you close a CD? ›
In many cases, it makes sense to leave your money in a CD for the full term to avoid having to pay the early withdrawal penalty. However, there are times when you decide paying the penalty is worth it. One example would be when you need the money to cover an emergency expense.
Is there a risk of losing money in a CD? ›
Losing money in a CD is highly unlikely. However, it's not impossible. If you're thinking about opening one, read the fine print about early withdrawal penalties, and be sure to compare more flexible options that don't have a maturity date. And even if you decide to open a CD, don't set it and forget it.
Is it worth putting money in a CD right now? ›
If you don't need access to your money right away, a CD might be a good savings tool for you in 2024 while average interest rates remain high. CD interest rates are high in 2024 — higher nationally, on average, than they've been in more than a decade, according to Forbes Advisor.
Key takeaways. Interest earned on CDs is considered taxable income by the IRS, regardless of whether the money is received in cash or reinvested. Interest earned on CDs with terms longer than one year must be reported and taxed every year, even if the CD cannot be cashed in until maturity.
Why shouldn't you invest all of your savings in a CD? ›
CD accounts earn less on average than the stock market and mutual funds. That's the trade-off of getting a guaranteed return versus the unpredictable swings of market investments. When you lock in a CD rate, it might not grow your money enough during high inflation periods when prices are going up.
What is the predicted interest rate for 2024? ›
Mortgage rate predictions 2024
The MBA's forecast suggests that 30-year mortgage rates will fall into the 6.4% to 6.7% range throughout the rest of 2024, and Fannie Mae is forecasting the same. NAR believes rates will average 7.1% this quarter and fall to 6.5% by the end of 2024.
What will CD rates be in 2025 in the USA? ›
"Shorter CD rates won't collapse and will still offer far higher yields than the ones we experienced in 2021 and prior years," Krumpelman says. "Even in 2025, we expect short CDs to pay more than 3%."
What is the best CD rate for $100,000? ›
For those who have a large sum to deposit, today's best jumbo CD rate from a nationally available institution is 5.51% APY, offered by My eBanc for 6 months. Most jumbo CDs require a minimum deposit of $100,000, though some jumbos—including My eBanc's—can be opened with $50,000.
What will CD rates be in 2027? ›
The Top CDs for Locking Your Rate Until 2025 to 2027
| Best 1-Year CDs - Mature Early 2025 | APY | Minimum |
|---|
| Best 3-Year CDs - Mature 2027 | Rate | Minimum |
| Lafayette Federal Credit Union | 5.10% | $ 500 |
| EFCU Financial | 5.00% | $ 500 |
| DollarSavingsDirect | 5.00% | $ 1,000 |
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