3 CD moves to make this April with inflation falling

The latest inflation report, released Thursday, brought with it good news: Inflation fell to 2.4% in March, marking the second consecutive month of easing inflation. While inflation remains above the Federal Reserve's 2% target rate, this drop in inflation carries with it consequences for the certificate of deposit (CD) market — and CD rates, in particular. Inflation is one of the many factors that can influence CD rates, although the impact isn't usually as pronounced as it would be if the Fed announced a rate cut.

If you're planning to open a CD this month or have CDs maturing in the coming weeks, the latest inflation news could mean that it makes sense to adjust your approach to CDs right now. Here are a few CD moves you may want to make this April now that inflation has dropped further.

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3 CD moves to make this April with inflation falling

Savers should consider the following CD action steps this month:

Shift from short- to long-term CDs

The latest decline in inflation could signal that it's time to switch your CD savings strategy from short-term to long-term CD accounts. A short-term CD approach tends to work best if short-term CD rates are high and there's a chance that CD rates will stay high or increase in the coming months. Opening a short-term CD in that environment lets you earn a good return on your money for a few months and then, at maturity, you can reinvest in a short-term CD offering the same or higher rate. 

However, we're in a rate environment that may be better suited for long-term CDs. Between the two consecutive months of lower inflation and the Federal Reserve's continued pause on interest rates, there's a chance that CD rates could drop over time. So, by investing your money in a long-term CD now, your deposit will earn interest at today's high rate for the full term, protecting you from any rate drops that happen before your CD matures. 

See how much you could earn with a long-term CD here.

Weigh the benefits of no-penalty CD accounts

With the current rate environment better suited for long-term CDs, savers opening a CD with a term longer than one year will be faced with one of the main drawbacks of traditional CDs: a lack of liquidity. To get the high rate that most CDs are offering, you agree to leave your money in the account until maturity. If you withdraw your funds before maturity, you'll typically have to pay an early withdrawal penalty that's typically equivalent to a portion of the earned interest.

These withdrawal rules can be a dealbreaker for savers who want to earn high returns but maintain liquidity. But these savers still have options, like no-penalty CDs, that may be worth considering this April. 

No-penalty CDs don't have an early withdrawal penalty tied to withdrawals that are made before maturity. That can be valuable for savers who want to lock in a high rate on a long-term CD now but also want to maintain access to their money for emergencies or other needs. 

A long-term no-penalty CD could be particularly beneficial this April, as opening an account now would lock in today's high rates for more than a year, ensuring big returns on your investment. And, like traditional long-term CDs, no-penalty CDs typically have fixed rates, so any CD rate drops that may occur before your CD matures won't impact your returns. 

Move money from high-yield savings accounts to CD

If you have money in a high-yield savings account right now, the drop in inflation rates and the possibility of future rate cuts could lead to lower yields from your account over time. Why? High-yield savings accounts use a variable rate that can change on a monthly basis, so if rates drop, the return you earn on your high-yield savings account will likely drop, too.

But if you move your money from a high-yield savings account to a CD today, you can protect your earnings from any rate cuts that the Fed could make later this year. The Fed's rate decisions are just one of several factors that banks use when setting their savings rates, though, so it's possible that your high-yield savings account's annual percentage yield (APY) could drop sooner than later if inflation continues to decline or other positive economic factors emerge. 

So, transferring the money from your savings to a CD this April would not only help you avoid Fed rate cuts later this year but also any unexpected high-yield savings rate cuts that your bank implements over the next few weeks. 

The bottom line

The latest inflation report is good news for consumers as a whole but is also a signal that it may be time to make changes to your CD strategy this month. With inflation easing, rates on high-yield savings accounts and CDs could start dropping soon, so shifting your approach to a long-term CD strategy, weighing the benefits that no-penalty CDs can offer and moving money from a variable-rate high-yield savings account can ensure that your money is working as hard for you as possible in today's uncertain economic landscape.