Now Is a Good Time To Open a CD — Here’s Why

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If you are trying to shore up your personal finances and take advantage of the current rate environment, you might be wondering: Should I open a CD right now? When the intention is to earn higher rates, it pays to shop around to find the CD with the best rate and a term that will help with your financial goals. 

Certificate of Deposit: Quick Take

A certificate of deposit is essentially a type of savings account where you can earn a fixed interest rate on your savings. This type of account lets you earn interest on a lump sum for a fixed period of time, but the money can’t be touched until the CD reaches maturity. Otherwise, you might incur early withdrawal penalties. 

Is Now a Good Time To Open a CD?

In July 2023, the Federal Open Market Committee raised the federal funds rate to 5.25% to 5.50%, where it remains as of Feb. 29. According to the minutes of the committee’s most recent meeting, held on Jan. 30 and 31, members acknowledged that “this policy rate was likely at its peak for this tightening cycle” — in other words, the FOMC does not expect further rate increases. In fact, it expects to begin lowering the federal funds rate once inflation is heading “sustainably” toward the Fed’s 2% target. In an interview with the CBS TV program “60 Minutes,” Fed Chair Jerome Powell said he expects the first rate reduction in May — the first of three he anticipates for 2024.

So what does that mean for CD rates? Consumer interest rates are likely to fall as the federal funds rate drops, so opening a CD now could maximize your rate.

Here are some other key takeaways about investing in CDs now:

• Many of the best CD accounts available pay higher interest rates than high-yield savings or money market accounts.
• If you put any money into a CD, you should be comfortable with not having access to it until it has reached maturity.
• Though considered by experts a safe or conservative investment with a guaranteed rate of return, there is often less payout than with riskier investments such as stocks or bonds.
• If you invested $10,000 in a one-year CD at the national average rate of 1.83%, you would have earned $183, giving you a total of $10,183 at the end of 12 months.

CDs Offering High Rates Right Now

Though the Federal Reserve pegs the national average for CD rates at 1.83% for one-year CDs as of Feb. 20, the best banks for CDs are offering great rates:

Types of CDs

While standard CDs have fixed interest, some of which you’ll forfeit if you withdraw the money before the CD matures, other types of CDs give you more flexibility.

• High-yield CD: High-yield CDs pay higher rates than standard bank CDs. The CDs listed above are high-yielding.
• No-penalty CD: No-penalty CDs allow you to withdraw your money before the CD matures, with no penalty. However, there might be a waiting period.
• Step-up CD: Unlike a traditional CD, which has the same rate for the entire term, a step-up, or bump-up, CD lets you upgrade to a higher rate if interest rates change during your CD term.
• Add-on CD: With most CDs, the initial deposit is the only one you’re allowed to make, so if you want to invest more money in a CD, you have to open a new one. An add-on CD lets you make a future deposit into the same CD, which can help you lock in more money at your existing rate.
• Jumbo CD: Jumbo CDs are standard CDs that require a high initial investment in exchange for a preferred interest rate.

Alternatives to CDs

CDs can be an excellent choice for earning high rates on your savings. They’re not the only way to earn high yields without risking your money, however. One of the following might be a better choice if you’re considering opening a bank account and want high rates plus instant access to your cash. Just beware of monthly fees.

• High-yield savings account: The best high-yield savings accounts offer competitive rates, often with no minimum deposit. You can add money whenever you want, and many banks allow you to make unlimited withdrawals. While rates are somewhat lower than rates on high-yield CDs — the Marcus Online Savings Account pays APY, for example, whereas its high-yield one-year CD pays — easy access to your money might make the lower rate worthwhile.
• Money market account: A money market account is a savings account with (usually) limited check-writing privileges. High-yield MMAs, such as U.S. Bank’s, which pays up to APY, rival the best checking accounts for anyone who only writes a few checks a month.

Final Take To GO: Are CDs a Good Investment?

If you are looking for a low-risk investment with a guaranteed rate of return, then many financial experts would agree that a CD may be the way to go. This holds especially true in early 2024, before anticipated changes to federal interest rates push consumer rates down. Before you invest, be sure to have a separate savings account or emergency fund you can draw from, as funds put into a CD typically cannot be touched for the entirety of the term length.

Caitlyn Moorhead contributed to the reporting for this article.

Rates are subject to change; unless otherwise noted, rates are updated periodically. All other information on accounts is accurate as of Feb. 29, 2024.

Capital one interest rates accurate as of May 9, 2024. See website for all current rates. 

Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by any entity named in this article.

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