After months of data showing inflation falling and, thus, some hope for interest rate cuts to come as early as March, there was some sobering news on Thursday showing inflation ticking up to 3.4% in December. That’s up from 3.1% in November and above the Federal Reserve’s targeted goal of 2%. The news will put the brakes on talks of an imminent cut to the benchmark interest rate, which currently sits at a 22-year high between 5.25% and 5.50%. And it will add some additional concerns for borrowers, many of whom have been dealing with higher rates on everything from mortgages to credit cards.
The inflation news, however, could be a boost for savers. Higher inflation has led to higher rates for savers, resulting in substantial returns for high-yield savings and certificates of deposit (CD) accounts. For those considering CDs, Thursday’s news just reiterated that now is a great time to act.
Start exploring your CD rate options here to see how much more interest you could be earning.
Why you should open a CD with inflation rising again
Here are three reasons why you should open a CD with inflation on the rise.
Rates are high right now
CD interest rates have been substantive for most of the past year. While rates on these accounts were negligible during 2020 and 2021, they’ve risen steadily ever since. It’s not difficult to find a CD with a rate of 5.5% or higher right now. Some savers may even qualify for a 7% APY. Compared to the meager 0.46% return you’ll average with most regular savings accounts, you’re essentially losing money by leaving your funds untouched.
Get started with a high interest-earning CD right now.
But they could rise again
Thursday’s inflation report showed that there’s more work to do to get inflation in check. That work could come in the form of additional interest rate hikes. While it’s too early to know if the recent report was an anomaly or a sign of greater work to be done, if it’s the latter rates will almost certainly rise once again.
With this in mind, it may be beneficial to ladder your CDs by opening one now that could be timed to expire when rates go up again. You can then reinvest those funds into an account with a higher rate than currently available while still earning today’s high rates in the interim.
You’ll lock in a rate
High-yield savings accounts may also be favorable for savers. But rates on those accounts are variable, meaning that they’re subject to change as the interest rate environment evolves. And as the new inflation report emphasizes, the environment can change quickly and unexpectedly.
While that can be favorable when rates go up it can be detrimental when they drop. CD accounts, on the other hand, lock in your rate until the CD term expires. This can be a great option now while rates are high. Considering that CDs can last months or years that interest could quickly add up – and it will accumulate even if the rate climate drops in the months and years to come.
The bottom line
The last two years have been beneficial for savers thanks to inflation and the higher interest rates meant to tame it. But as this week’s inflation report shows, inflation isn’t quite under control. This means that interest rates are unlikely to fall anytime soon – thus resulting in reliable rates on CDs. But they could also rise yet again, emphasizing the timely benefits of this savings vehicle. And since rates on these account types are locked, by acting now you could secure a high rate for months and years to come, even if the overall rate climate becomes less favorable for these types of accounts. Get started with a top CD account here today.
