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High CD account interest may not stay this high for much longer.
This seemed to be the message last week after the Bureau of Labor Statistics released its latest inflation reportwhich translates to inflation of 2.9% for July, the fourth consecutive month of declines. With inflation now near the Federal Reserve’s 2% target, rate cuts seem imminent (the CME FedWatch tool estimates that the rate will be cut in September with 100% certainty).
This is good news for borrowers, but could be problematic for savers who have benefited from increased interest rates. high-interest savings investments And Certificate of Deposit (CD) Accounts in recent years. With this in mind, potential CD account holders should certain steps now, especially by opening the right CD. But which CD is the best one to open before the Fed cuts rates? We’ll explore that below.
First, find out how much more money you could earn with a top CD.
What is the best CD to open before the Fed cuts rates?
Simply put, the best CD you can open before the Fed cuts rates is one that you can leave untouched until MaturityIf you need early access to your money, you usually have to Prepayment penalty to do so. The “best” CD is therefore unique to your financial situation. That is, if you can afford to long-term CD (longer than 12 months) with a sizable deposit is arguably the best type of CD to open before interest rates are cut.
This is because CD interest rates are fixed and remain unchanged for the entire term. CD running timeor term, regardless of what happens in the general interest rate environment. While this is a significant disadvantage in an economy where interest rates are constantly rising, it is now a major advantage with several rate cuts looming. And considering that rates on CDs with terms of 18 months or more are still in the 4% to 5% range, it makes sense to 5,000 US dollars, 10,000 US dollarsor more, into one of these accounts right now.
This way, you not only lock in today’s increased interest rate, but you can also earn significantly more than if you wait until, say, 2025. It’s important to remember that CD interest rates in 2021 and 2020 were several times lower than they are today, so a price correction seems inevitable. Don’t wait for that to happen.
Start here now with a high-interest, long-term CD.
What are today’s interest rates on long-term CDs?
To better decide which long-term CD is best for you, it’s helpful to know what interest rates are available and how much you can earn by opening a CD. Here are some terms and rates you can lock in now, in addition to the interest you can earn on a $5,000 and $10,000 deposit:
- 18-month CD at 5.00%: $379.65 earned at $5,000/$759.30 earned at $10,000
- 2-year CD at 4.75%: $486.28 earned at $5,000/$972.56 earned at $10,000
- 3-year CD at 4.45%: $697.64 earned at $5,000/$1,395.29 earned at $10,000
- 5-year CD at 4.35%: $1,186.32 earned at $5,000/$2,372.64 earned at $10,000
As you can see, the longer you leave your money in a CD, the more you will earn, even if the interest rate is lower than with a shorter term. However, this difference in earnings must be carefully weighed against your ability to keep the funds frozen in the account. If you think you will need to access them sooner or need a portion before the account matures, a CD with a different term and opening deposit may be a better fit for you.
The conclusion
The “best” financial decision is different for everyone, and that’s no different when trying to determine the optimal CD account to open now before the Federal Reserve starts cutting interest rates. Still, there’s a compelling argument for opening a long-term CD account with a sizable deposit now if savers can afford it. By making that move today, they can lock in a high interest rate while it’s still available, and they can earn Hundredsunless ThousandsDollar in the coming months and years, even if the general interest rate climate cools.
Do you have further questions? Learn more about your current CD options here.
