3 important things to know about CD rates today
In today's economy, interest rates are on top of mind. Inflation has caused rates to rocket upward with the benchmark interest rate now at a 22-year high (and expected to go higher). Rates on mortgages, mortgage refinancing, credit cards and personal loans have all risen as a result. Even rates on home equity loans and HELOCs have been affected. And, there's no clear sign yet of when rates will flatten out, with many now expecting some rate leveling to hold off until 2024.
In this environment, savers would be best served by moving their money out of a regular savings account and into a high-yield or certificate of deposit (CD) account instead. Rates on both account types are exponentially higher than they had been in recent years, providing savers a great way to protect and grow their money. That said, in order to truly optimize today's CD rates, there are some things prospective accountholders should know.
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3 things to know about CD rates today
Here are three important things to know about today's CD interest rates.
Rates are higher than they've been in years
It's not hard to find a CD online now with an interest rate of 5.5% or higher. Some experts are forecasting an additional rise closer to 6%. Compared to the minimal rates on CDs that were being offered just a few years ago (around 1% or less in 2020, for example), it's clear that now is a great time to open a CD.
Plus, rates on CDs are locked for the full CD term. So even if you open a 12-month account at 5.5% today — and the rates drop to 5% in a few months — you'll continue to earn that elevated rate for the full duration of the CD term. Using a $5,000 deposit for reference, that's an extra $275 earned in one year simply by moving money from one account to another.
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But rates won't stay this high forever
CD rates are largely dependent on what the Federal Reserve does (and doesn't do). Accordingly, CD rates won't remain this high forever and it's possible that they have already peaked. While an additional rate hike in the remaining months of 2023 is possible, there are also signs that the aggressive rate increases of the last 18 months are coming to an end, and that rate cuts may be in play for later in 2024.
If that's true, the window of opportunity to make money with a high-interest-earning CD may be closing. Savers looking to this account as a way to grow their money, then, should take advantage now.
Rates tend to be higher with online banks
While not always the case, rates on both CD and high-yield savings accounts tend to be higher with online banks and lending institutions. Because these banks don't have the same overhead costs that competitors with physical locations do, they're better able to pass on their savings to account holders in the form of higher interest rates.
You may be comfortable using your local bank branch, but make sure to do your homework, too. A rate that's significantly higher than what can be secured by using your current bank may be worth making the switch.
Explore online CD accounts here to see what rate you can secure.
The bottom line
CD rates are the highest they've been in years, making now an opportune time for many savers to take advantage. But timing is key, and the timing with CD accounts won't remain positive forever. There's already talk of rate cuts next year, which will affect what can be earned with CDs, so it makes sense to act promptly. By being aggressive — and by using an online bank — savers can make many times more interest on their money, giving them a much-needed boost in today's inflationary climate.
