We're starting to see CD rates slide. Is now the time to lock in?
High-yield CD rates have started to slide, but it may be a good time to lock in a CD if you can keep money in your account for a full term. Start saving today.
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- Some of the top CD rates have started dropping for several term lengths.
- It might be a good time to open a CD if you can keep money in your account for a full term.
- You could build a CD ladder if you want to have more flexibility.
Some of the best CD rates have started to drop for several CD terms, but you can still find many nationwide competitive options paying around 5% APY. Find out if now is a good time to open a CD.
Is now a good time to lock in CD rates?
It may be a good time to open a CD, if it aligns with your savings goals, says Alvin Carlos CFA, CFP, and managing partner of District Capital Management.
CDs work differently than other types of savings accounts because most have early withdrawal penalties — you have to maintain money in the account for a full term or pay a penalty if you take money out early.
"If you don't need money in one year, for example, I think it's advantageous to buy a 1-year CD now," adds Carlos.
Carlos also points out that if you lock in a CD, you'll be able to maintain a high rate for the remainder of the term. In comparison, high-yield savings accounts and money market accounts have variable interest rates. These rates wouldn't be locked in, so the rates could change at any time.
Carlos recommends building a CD ladder if you want more flexibility. You can create a CD ladder by distributing your money across several CDs with different term lengths. For example, you could open a 1-year, 2-year, and 3-year CD. Each year, you'll have access to a portion of your savings, and you can reevaluate your goals to determine whether you should renew the account or withdraw at maturity.
If you want to have more access to your money, a high-yield savings account or money market account may be a better place to keep your savings. You can take out money from these savings accounts at any time, although some banks do penalize consumers for withdrawing from savings more than six times per month.
The best no-penalty CDs are a good way to lock in higher rates on CDs without facing penalties if you need to withdraw funds before the maturity date. CIT Bank CD rates and Raisin are popular no-penalty CD options.
What will CD rates be in 2024?
Carlos says CD rates have likely peaked and will likely start dropping more in 2024 once the Federal Reserve starts cutting the federal funds rate.
CD rates are impacted by the federal funds rate, and may fluctuate over time. When the Federal Reserve raises the federal funds rate, CD rates rise. CD rates drop when the Federal Reserve cuts rates.
The Federal Reserve's Summary of Economic Projections for June indicated only one interest rate cut in 2024.
"For next year, I wouldn't be too worried about a huge drop in CDs," says Carlos. "I think that it's going to start incrementally dropping."
How to find the top CDs
If you're searching for CDs with high interest rates, here are a couple of things to keep in mind:
- Overall, online banks and credit unions pay higher CD rates than big brick-and-mortar banks. If you're searching for options that are available nationwide, several CDs pay 5% interest or more.
- A few local financial institutions have CD specials paying 6% interest or more. You'll have to meet geographic requirements, though.
- The best 6-month CDs have the highest rates overall, but you can also find other terms that pay good rates, too.
While CD rates can be a major factor in selecting an account, it's also important to think about what you want out of your banking experience. When you're choosing a CD, you can also compare opening requirements, early withdrawal penalties, and CD closing requirements.
This article was originally published in December 2023.