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Should I open a CD now or wait?

Current interest rates play a big role in when you should open a CD — but they're not the only factor to consider.  Getty Images/iStockphoto

If you're looking for a safe and reliable way to earn money while keeping your savings secure, a certificate of deposit (CD) could be the perfect solution for you.

CDs are low-risk investments that often have higher interest rates than savings accounts (including some high-yield accounts). They also provide the same federal protections savings accounts do ($250,000 per account per institution should the bank fail).

That said, there is an element of timing involved when it comes to opening a CD. Since your rate is locked in when you open the CD, current interest rates play a big role in this timing — but rates are not the only factor to consider. There are several things to keep in mind when it comes to determining if you should open a CD now.

Start exploring your CD options online now.

Should I open a CD now or wait?

Here's what you should consider when deciding whether to open a CD now.

What are current interest rates?

CD rates are set when you open the account, so if CD interest rates are high, it's worth opening a CD to take advantage of them. Should overall rates go down in the future, your CD's rate will stay in place for the entirety of the term, allowing you to earn maximum interest.

"Savers should be aware of where the Fed has set rates simply to know why their CDs… are paying a certain level of interest," says Brian Spinelli, CFP, AIF, Co-CIO at Halbert Hargrove. "I think the important thing to remember is that those rates may not always be there to stay in perpetuity."

CD rates are currently high — up to 5.50% on the highest-earning CDs. So, by opening a CD now, you can get the most from these rates and reach your savings goals faster.

See today's current CD rates here.

When will you need to access the funds?

Long-term CDs often have higher interest rates than short-term options, but which is best for you depends on when you'll need your funds.

With many CDs, your funds are locked in until the CD matures. If you need to access them before the term is up, you face an early withdrawal penalty that can amount to several months' interest.

"If you choose a term that extends beyond your time horizon, you could forfeit interest or miss the opportunity you've been saving for," says Greg Goff, CFP, founder and financial planner at Sound Wealth Management.

That said, if CD rates are high, you can still take advantage of them by utilizing a couple of strategies.

First, you can explore no-penalty CDs. These products may offer slightly lower rates than traditional CDs, but they won't charge a fee if you withdraw funds before the CD matures.

Second, you can create a CD ladder. With CD laddering, you open multiple CDs with staggered maturity dates so you'll have regular access to funds while still enjoying the higher rates long-term CDs can offer.

Do you have a sufficient emergency fund?

Experts recommend putting aside three to six months' worth of income for an emergency, such as job loss or unexpected medical bills. Since you may need to access these funds at a moment's notice, it could make more sense to keep them in a more liquid account like a high-yield savings account.

It can take a few business days to receive the funds you withdraw from a CD. Savings accounts, however, can provide instant access through account transfers and ATM withdrawals. So, it may be best to fully fund your emergency savings first. After that, you can put excess savings into a CD.

Find the high-yield account that's right for you here.

The bottom line

The decision to open a CD now or wait depends on many factors, including interest rates, when you'll need to access the funds and the state of your emergency fund.

In general, when rates are high — as they are now — opening a CD allows you to maximize your earnings even if rates go down in the future. And, thanks to the flexibility you can enjoy with no-penalty CDs and CD laddering, you can still take advantage of these rates even if you think you may need your funds sooner than anticipated.

When weighing your CD options, be sure to shop around and compare multiple offerings to find the rate and terms that best fit your needs.

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