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The Federal Reserve is set to meet again on September 17 and September 18, after which a cut to the federal funds rate is expected to be announced. While many economists are still determining if the rate, currently set at a range between 5.25% and 5.50%, will be cut by 25 basis points or 50 basis points, most do expect a cut to come. The CME FedWatch tool has a cut pegged at almost 100% certainty at this point in August.
While this is a positive for borrowers and those coping with higher loan costs, it will be a detriment for savers who have benefited from an elevated rate climate. This is particularly true for those who have opened certificates of deposit (CD) and high-yield savings accounts.
Rates on both have risen exponentially in recent years but could soon fall dramatically if the Fed takes action. Prospective CD account holders, in particular, should understand this reality and take certain, strategic steps to prepare. Below, we’ll detail three critical CD moves to make before the Fed’s September meeting.
See how much more you could be earning with one of today’s top CD rates now.
3 critical CD moves to make before the Fed’s September meeting
Don’t yet have a CD account? Time is running out to earn today’s top rates but you can still earn a substantial return if you make the following moves before the Fed’s next meeting:
Consider an online bank
CDs are offered by both big banks and smaller ones that are only available online. The latter type, however, tends to offer higher rates than their counterparts with physical branch locations. Because online-only banks don’t have the same operating costs as banks with brick-and-mortar locations, they’re generally able to pass on those savings to account holders in the form of higher interest rates. So if you’re looking for the highest CD interest rate right now – ahead of interest rate cuts to come – you may be better off considering an online bank versus your local one. The difference in earnings could prove to be substantial, especially when calculated over the full term of the account.
Start shopping for top CDs online here.
Lock in the longest term feasible
CD terms can be as short as three months or as long as 10 years, depending on the lender utilized. But with a cooling interest rate climate on the horizon, it makes sense to pursue the longest term feasible for your financial situation. By locking in a 5-year CD rate, for example, you can guarantee today’s high rates until that CD has matured, even if rates drop significantly during the account’s lifespan. That said, make sure that your CD length isn’t longer than you can part with the funds, or you’ll wind up paying an early withdrawal penalty to regain access to your money prematurely.
Deposit as much as you’re comfortable with
A high rate is only half of the equation when it comes to earning a substantial return on your CD. The other half involves the initial deposit amount. And the more you deposit, the more you stand to earn with that rate. But, like locking in the longest term feasible, it’s equally important to only deposit as much as you’re comfortable parting with for the full CD term. A substantial return can only be earned by leaving your money in the CD until the account has matured. So be sure to calculate the exact amount before acting or you could wind up wiping out all of the interest you’ve earned by withdrawing your money too early. With the right rate and the right deposit, you could potentially earn hundreds and possibly thousands of dollars.
The bottom line
CD accounts have been a smart and effective way to earn significant returns on your money for much of the last two years. But an evolving rate climate which is expected to change more dramatically after the Federal Reserve meets again in September means that rates on CDs will soon adjust downward. Understanding this, then, savers should be proactive by making critical moves now. This includes using an online bank, locking in the longest term feasible and depositing as much as is comfortable to earn as much interest as possible while they still can.
Have more questions about opening a CD now? Learn more online today.