Why you should open a long-term CD for 2024
Finding the most effective way to grow your money is one of the key parts of a financial plan. You don't want all of your money invested in the market, after all — but you also don't want your money sitting stagnant, either.
A certificate of deposit is a safe and secure way to earn a decent amount of interest on your money. And, right now is an especially good time to put money into a CD, as rates are higher than they were just a few years ago. In turn, a long-term CD could be a smart way to make your money work for you.
Ready to open a CD? Start looking at your top CD options online here.
Why you should open a long-term CD for 2024
A long-term CD generally has a term of over one year. While there are certain factors to consider before you put your money into a long-term CD, opening one could be a good financial move to start the new year. Here's why:
Rates are high – but that could change soon
Right now, you can get high interest rates on CDs. For instance, you can get a rate of more than 4.5% on certain 5-year CDs right now.
Rates are high in large part because the Federal Reserve hiked its benchmark rate 11 times over the past 18 months in an attempt to fight inflation. The Fed does not set the rates for consumer savings products like CDs, but the interest rates available for these products are generally impacted by the federal funds rate.
However, the fight against inflation has largely worked, and the Fed has kept interest rates paused for three consecutive meetings. They have also indicated that cuts of up to 0.75% could be coming next year, which would likely cause CD rates to go down as well. Luckily, there is still time to open a CD right now to lock in a high rate.
Find the right CD options for you online here.
CD rates are fixed
One big benefit of a certificate of deposit is that the rate is generally locked in when you open the account. If you open a 5-year CD with a 4.60% interest rate, you'll earn that interest rate for the entire five-year term — even if there are rate cuts in the future.
The tradeoff is that you typically can't access your money during the CD term without paying a hefty early withdrawal penalty. So, before you open one, make sure you are comfortable having these funds inaccessible for the entire term.
Your principal is safe
A CD is not going to get you the big returns you could get with a riskier choice, like investing your money in the stock market. But, the options with potentially high rewards can also come with significant risks. For example, the stock market could take a downturn and leave you with stocks worth less than you had when you started.
That won't happen with a CD. Even if your bank fails, a CD is protected by the FDIC or NCUA at up to $250,000 per depositor, per account.
That said, the interest you would earn by opening a long-term CD can be hefty. If you put $10,000 into a 5-year CD with a rate of 4.60% right now, you'd earn a total of $2,521.56 in interest by the end of the term.
The bottom line
If you want to maximize the returns on your money, consider opening a long-term CD as we move into 2024. You'll be able to take advantage of the high interest rates currently available, and your money will be safe while you earn significant interest.
