So much for some interest rate relief.
After a pause in increases in June, all signs are pointing toward another rate hike when the Federal Reserve meets this week. The current benchmark rate is currently at a range between 5% and 5.25%, although most experts expect that to increase as the Fed continues to battle inflation. And while higher rates are unwelcome news for wide swaths of the public, they have had some positive effects if you know where to look. Specifically, the interest rates on high-yield savings and certificates of deposit accounts have exponentially increased compared to where they were just a few years ago.
As with most financial products and services, however, the timing here is key. And the timing for certificate of deposit (CD) accounts may not be any better that it will be this week.
Start by exploring your CD account options here to see how much more money you could be earning.
Why you should open a CD this week
Interest rates are affected by a multitude of factors, with the Fed’s activity being the most significant. This has caused interest rates on mortgages and credit cards, for example, to increase significantly. But it has also caused the rates on savings accounts to jump with it. So, with another rate hike expected imminently, this may be one of the best times to open a CD.
Rates on CDs are already high. Depending on the length of the CD term and the bank in question, savers could secure an APY of 4.50% to 5.35% or higher if they shop around. But those rates are current, meaning they will head upward based on the Fed’s presumed rate increase this week. While a CD is a great choice in today’s high rate environment, it will only become more favorable later in the week and into August if the Fed acts as many experts predict. It wouldn’t be out of the question to see rates on CDs head closer to 6%.
Using 5.75% as a gauge, savers could potentially earn $57 on a $1,000 deposit into a one-year CD. The more you put into the account the more interest you’ll earn — and that’s at the 5.75% rate. It’s possible rates could be even higher. That’s why savers looking toward CDs may soon want to open one.
Start exploring your CD options here now to learn more.
Which CD term should you open?
Historically, long-term CDs (think longer than one year) have offered the highest interest rates. But that’s not always the case in today’s volatile rate environment.
In fact, rates have been comparable or even better with short-term CDs instead. By opening a three or six-month CD, savers can earn some of the highest rates available while still giving themselves the flexibility to move the money around in the short-term. This is particularly beneficial if savers believe the rate environment will head up again later in the year.
Remember: CD terms are locked and you won’t be able to access your funds until the term has ended (unless you’re willing to pay a penalty). So it may make sense to ladder your CDs so that one expires at today’s high rate in the next few months, giving you the opportunity to open a new one at the prevailing, presumably higher rate.
The bottom line
CD rates are high and are likely heading higher, making now a great time to open an account and start earning more money. By leaving your money untouched in a regular savings account, you’ll be losing interest and not taking advantage of today’s high rates. With the Fed poised to move interest rates up yet again, this week may be one of the very best times to open a CD.