4 big CD account mistakes to avoid going into 2025
A certificate of deposit (CD) account has historically been one of the safest ways to protect your money. Deposit a certain amount of money in the account for a predetermined term and you'll earn a fixed rate of interest upon maturity. This predictability was especially helpful in 2022 through much of 2024. With inflation problematic and borrowing costs high, elevated returns on CDs allowed savers to offset some of the economic burden felt elsewhere.
Recent months, however, have reduced what savers can earn with these accounts. While still much higher than the average savings account (which is now 0.43% compared to CDs with interest rates approaching 5%), returns on these accounts are expected to continue to decline as the Federal Reserve continues its rate-cut campaign. Against this backdrop, then, savers considering a CD should know which steps to take – and which mistakes to avoid – going into 2025.
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4 big CD account mistakes to avoid going into 2025
To improve your chances of CD success in the new year, you should avoid making the following mistakes:
Delaying an account opening
Today's CD rates are still attractive but not what they were prior to the Fed's two rate cuts issued earlier this year – and they're unlikely to be as beneficial after the expected December rate reduction. Delaying an account opening, then, would be a major mistake. By acting aggressively prospective account holders can lock in one of today's high rates and keep it even as the wider rate climate continues to cool.
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Letting your current CD automatically rollover
Do you already have a CD account? Then be sure to avoid having it automatically rollover upon its maturity. That could cause your funds to get locked into a new, lower-interest-earning account. Instead, utilize the grace period time between your account maturity date and the new rollover date to look for alternative, potentially better places for your funds.
Opting for the higher short-term CD rate over the lower long-term one
It's understandable for savers to simply look for the highest interest rate possible. But that would be a big mistake when it comes to CDs, especially right now. What value will a high CD rate truly offer if it expires in three or six months, especially if rates drop again in the interim? Instead, opt for the slightly lower rate that is now available with many long-term CDs. Not only will you earn more interest with this approach but you'll lock in extended protection for your funds while the economy recalibrates.
Using your current lender without first shopping around
In 2022 or 2023, high CD rates were ubiquitous and easy to secure. This meant that using your local bank with its physical branch locations was often suitable. But with rates dropping a bit and attractive offers less prevalent, it would be a mistake to automatically use your current bank or lender without first shopping around. If you use an online bank, instead, you may be able to lock in a significantly higher interest rate. You won't know about the alternatives, however, until you first start shopping around.
The bottom line
You should always take a strategic approach to where you put your money, particularly if you're working with CD accounts in today's unique economic climate. By avoiding these mistakes, you'll better be able to set yourself up for financial success both now and, depending on the CD term, multiple years ahead.
