3 CD moves to make before the July Fed meeting
Thursday's inflation report showed that annual price growth cooled from 3.3% in May to 3.0% in June. Some economists expected June's inflation rate to be 3.1%, meaning that rate is now falling toward the Federal Reserve's 2% target faster than projected.
That's important because the Federal Reserve stated on July 9 that continued positive economic data may open the door to interest rate cuts. And while those potential interest rate cuts may be good for any variable-rate debt you have, they can also weigh heavily on your savings returns. So, it may be time to adjust your savings strategy. And, with the Federal Reserve planning to meet from July 30 through July 31, you should act quickly.
One savings vehicle to consider right now is a certificate of deposit (CD). While you'll have to agree to keep your money in a CD for its entire term when you open one, these accounts offer fixed returns on your savings. And that could be a valuable proposition in today's changing economic environment. We'll discuss three smart CD moves you should make before the July Fed meeting below.
Open your CD now before the Fed meets later this month.
3 CD moves to make before the July Fed meeting
Make the following CD moves to protect your savings returns as inflation cools. And, do so before the Fed meets later this month to discuss economic policy and potential rate cuts.
Open a CD while rates are still high
The Federal Reserve is expected to cut interest rates if inflation continues cooling. And, with that happening, consumer interest rates may come down soon. But lower rates mean you could earn a lower CD return if you wait too long to open it.
Right now, leading CDs are still offering impressive APYs. You could earn returns as high as 4.8% annually with some 5-year CDs. But, today's high returns may start to fall leading up to and after the Federal Reserve's July meeting. So, it's important to open your CD now while rates are still elevated.
Open your CD before rates have a chance to fall.
Look to long-term options
You'll need to pick a term when you open a CD. And, you have short-term and long-term options to choose from. But, in today's economic environment, the latter may be more appealing. After all, long-term options may make more sense when rates are expected to fall since you can lock in yours until the account matures.
If you choose a short-term option, like a 3-month or 6-month CD, you'll only lock in today's high rates for a brief time. But, if you opt for a longer term, like a 3-year or 5-year CD, you'll lock in today's high returns for years.
Compare your options
While CD returns are high, making many of these accounts appealing, you shouldn't open the first one you find. The financial institutions that offer these savings vehicles each have their own terms. So, it's crucial that you compare your options.
First, look into APYs. Since you'll be using a CD to lock in today's competitive returns for the long term, the return you lock in should be as high as possible. Keep in mind that some leading long-term CDs offer high rates, but others may only provide minimal returns. And, rates aren't the only thing you should compare.
"While rates are significant, they should not be the sole determining factor when choosing a CD," explains Nick Covyeau, owner and financial planner at the financial planning firm, Swell Financial. "I recommend thoroughly reviewing the CD contract and stipulations in advance, as many institutions may have specific requirements to qualify for the advertised yield."
Next, compare early withdrawal penalties. These are fees you'll have to pay if you need to access the funds in your CD early. And, even if you don't intend on tapping into your money early, you may need to in a financial emergency. So, it's a good idea to try to opt for options with minimal penalties for doing so.
Finally, compare the institutions behind the accounts. "An often neglected factor to consider when comparing CDs is the strength of the issuing bank or credit union," explains Tyler Gray, CFP, managing director at the financial planning firm, Sage Oak Financial.
That's because while most CDs are either FDIC or NCUA-insured, there are still drawbacks to financial institution failures when you have money deposited. "A CD that pays a better-than-average rate, even if it is FDIC insured, may not be a great deal if the bank is shuttered by the FDIC and you're stuck waiting on the funds, possibly when you need access to the funds most," says Gray.
Compare leading CD offers now.
The bottom line
The Federal Reserve could start to cut rates soon with inflation cooling. And with the next Fed meeting taking place later this month, there are a few smart CD moves you can make to protect your savings now. Compare your options to ensure you're getting the best deal, consider long-term maturities to lock in today's high rates for as long as possible and open a CD now while rates remain elevated. Compare today's top CDs now.
