3 good reasons to open a CD this February
When it comes to your financial decisions, timing is critical. If you purchased a home in 2020 or 2021, for example, you may have been able to lock in a historically low mortgage interest rate. However, if you waited until 2023 or 2024, you likely paid exponentially more. That's because inflation and interest rates were low in the former years and significantly higher in the latter ones, thus causing borrowing costs to surge.
But that higher rate climate hasn't been a total loss, as savers could secure significant amounts of interest on their money via high-yield savings and certificates of deposit (CD) accounts. So it's generally been a good time to open CDs and renew existing ones. And even though rates on these accounts have dropped over the last year, it's still smart to consider one or more CDs now, especially for this February. Below, we'll break down why the timing makes sense to act now.
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3 good reasons to open a CD this February
While February can be a short month it can be a smart time to lock in big returns for the long-term. Here are three good reasons to open a CD this February:
Rates are still high
Sure, the highly elevated CD interest rates of 6% or even 7% from recent years are mostly gone now. But that doesn't mean savers still can't find a CD in the 4% to 4.50% range now instead. Whether you're looking for a short-term CD (which matures in under a year) or a long-term one (which matures in 18 months or longer), there's likely a high-rate option for you to explore currently.
If inflation gets under control, however, and the Federal Reserve elects to resume its interest rate cut campaign (it paused cuts in the January meeting), CD rates will inevitably fall again. So use this February to find — and open — the best CD for your financial goals.
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There's no Federal Reserve meeting scheduled
One big factor that drives CD interest rates is the federal funds rate and what the Federal Reserve does to it. This is a large part of the reason why CD rates dropped last year as the Fed issued three interest rate cuts in as many meetings. And, sometimes, lenders don't even wait for the Fed to issue a formal action. They often adjust their offers in anticipation of a move there.
But there is no Federal Reserve meeting scheduled for February. The bank won't meet again until March 18. That means CD rates will remain relatively stable in February, giving savers more time to do their research, compare lenders and determine exactly how much they can deposit to avoid paying an early withdrawal penalty.
Your money isn't growing
The average interest rate on a traditional savings account is 0.41% right now. So if your money is in that account type this month it's barely growing. That's the equivalent of 41 cents earned for every $100 deposited. CDs, however, even in today's lower rate climate, can produce a return about 900% better. So move your funds out of the account with the 0.41% rate and instead transfer them to an account with a rate of 4.15%. But do it this February, before any rate changes take place, so you can lock in today's high rate for the long term.
The bottom line
The timing surrounding a CD account opening was optimal in recent years but it can still be advantageous for a wide swath of savers to act this February. By doing so, they can secure a high rate on their money and they can do so in a timely and thoughtful manner because they won't need to rush and worry about any Fed rate changes. And with alternatives like traditional savings accounts barely growing their money at all, this February marks an opportune time to change strategies.
