Should you open a CD before the January Fed meeting?
For much of 2023, a certificate of deposit (CD) was a great way to boost your savings and protect your principle. CD interest rates grew exponentially thanks to surging inflation and decades-high interest rates meant to tame it.
And, depending on your location and personal factors, you could have secured a 6% or even 7% interest rate. Compared to the 1% rates or lower from 2020 and 2021, that was a significant amount of money to be made simply by transferring your funds from one account type to another.
But as 2023 evolved inflation fell and interest rate hikes were put on pause. Now, in 2024, there are serious talks about a cut to the benchmark interest rate range. And with the first Federal Reserve meeting set to take place at the end of January, many savers may be wondering if they should still open a CD. Below, we'll break down three reasons why it may be worth it to do so.
Start by exploring your CD account options here to see how much more you could be earning.
Should you open a CD before the January Fed meeting?
Here are three compelling reasons why you should consider opening a CD before the Federal Reserve meets on January 30.
Rates are still high
CD interest rates are still high right now, so if you haven't taken advantage you still can. While, historically, rates have usually been higher on long-term CDs versus short-term ones, the opposite is often true now. Still, you can earn significantly more no matter which you choose.
How much more can you expect? Using a $5,000 deposit as an example, savers could expect to earn $225 over 12 months with a short-term CD at a 4.5% interest rate. And you can likely find a better rate simply by shopping around online.
Get started with a top CD account here now.
Rates have likely plateaued — and may drop soon
While CD rates are elevated now they've likely plateaued and may even fall soon. Even if the Fed doesn't cut rates in their January meeting many expect them to do so later in the year, possibly as soon as March. When they do, rates on CDs will fall with them.
So don't wait for that to happen. If you do, you'll lose out on free money that you could've got simply by depositing some of your money into a top-earning CD. And if your existing funds are sitting in a regular savings account now, with an average return of just 0.47%, you're already losing money.
You'll earn more interest than the alternatives
Still not convinced that now is an opportune time to open a CD? Then explore the alternatives. As noted, the rates on regular savings accounts are barely existent. High-yield savings accounts, meanwhile, have competitive rates almost as high as the best CDs.
But unlike CDs that have their rate locked until the account matures, rates on high-yield savings accounts are variable and subject to change. And with the potential for rate cuts this year high, they may not be as favorable for many savers as a CD could be.
The bottom line
CDs have been a great option for millions of savers over the last year but that window of opportunity could soon be closing. If inflation stays in check the Fed could soon follow with interest rate cuts, thus reducing the returns savers could get on CD accounts. By acting now, then, they could still lock in a high rate before that happens. And they can likely earn more than some alternatives, too. Still, the decision to lock your money away for an extended period of time is a personal one, so savers will want to do their research and compare all of their options before getting started.
