CD account dos and don'ts to know this February
A certificate of deposit (CD) account has often played a small but important role in one's savings strategy. In recent years, however, it's grown to become a critical one. While inflation soared and interest rates rose alongside it, so did the returns on CD accounts. Even though inflation has since dropped over the last year, the decline in interest rates hasn't moved as rapidly. That's left interest rates on CDs in the 4% to 4.50% range as of early February 2025.
That said, locating a high-rate CD in the ideal term with the right deposit amount isn't as easy as it was in 2024. So savers considering this option now will need to be a bit more strategic and nuanced in their approach. That extends to understanding some timely dos and don'ts for CD accounts this February. Below, we'll break down half a dozen to consider now.
Start by seeing how much more money you could be earning with a top CD here.
CD account dos and don'ts to know this February
Improve your chances of CD account success this month, and in the months ahead, by doing (and not doing) the following:
Do: Act quickly
CD account rates are already down significantly from recent years when it was possible to get an account with a rate in the 6% to 7% range. Waiting for them to fall further, then, would be a mistake. So consider acting quickly by locking in a high-rate account now, before the rate climate potentially cools again.
Get started with a CD online now.
Do: Open a long-term CD
Long-term CDs have slightly lower interest rates than short-term CDs do but the extended earning potential makes the long-term accounts more beneficial. Long-term CDs will better protect your money from any volatility in the market, as well, as the rate you opened the account with will remain the same for the full term, even if rates fall later in 2025.
Do: Shop around for rates and lenders
Because high CD rates aren't as readily accessible as they were in 2023, it's more important now to take the time to shop around for rates and lenders. Online banks, in particular, generally offer better rates and terms than banks with physical locations, so be sure to look around online to see what you can lock in now.
Don't: Wait until March
The next Federal Reserve meeting is scheduled for March 18 and March 19 and, with it, potentially some changes to the rate climate. While a cut to the federal funds rate seems unlikely then, comments made after the conference could affect the rate climate. And remember that lenders don't need to wait for formal Fed action to tweak their rate offers, as they could do so in anticipation of a cut. Waiting for developments next month, then, should likely be avoided.
Don't: Deposit too much money
With rates on CDs still relatively high – and with the overall rate climate unpredictable currently – it can be tempting to deposit too much money into an account this month to offset future volatility. But that should be avoided. You'll still need money for everyday living expenses and other needs. And if you ultimately need to regain access to your money prematurely, it will come at the expense of having to pay an early withdrawal penalty, which could easily wipe out all of the interest you've earned to that point. So, act quickly and open a long-term CD, yes, but don't do either with an amount of money you can't afford to part with for the full CD term.
Don't: Avoid CDs for other savings options
Because of the inherent early withdrawal penalty, some savers may be considering skipping CDs altogether this February. But that's not the right approach, either. A traditional savings account comes with a rate under 0.50% now, essentially making it an inefficient savings tool. High-yield savings accounts, meantime, have rates competitive with the top CDs, but the rates on those are variable and likely to change over time, perhaps more drastically or quickly than savers would prefer. Avoiding a CD, then, for either of these alternatives wouldn't be beneficial now.
The bottom line
A CD can still be an advantageous financial tool for many savers, it just requires a bit more patience and a more strategic approach this February than it may have in February 2024 or the year before. By knowing these dos and don'ts and applying them to your CD account plans this month, you'll better protect your money and improve your chances of long-term CD success, regardless of what happens (or doesn't happen) in the broader economic climate.
