3 good reasons to open a long-term CD this spring
Spring is in the air, but it's not just a good time for picnics or planting flowers. It's also a great time to think about your savings and how to protect that money from the effects of persistent inflation.
After all, if you've been to the gas pump recently, you've felt the pain of rising gas prices, and those aren't the only prices that are headed up. According to the February inflation report, the inflation rate is at 3.2%, so it's important to earn at least that rate or more on your savings to avoid losing buying power.
That's where a long-term certificate of deposit (CD) might come in handy. Today's leading options offer returns that outpace inflation and come with other benefits, too.
Compare today's leading long-term CDs now.
3 good reasons to open a long-term CD this spring
There are multiple reasons this spring may be a good time to open a long-term CD, including:
Interest rates are currently high
The Federal Reserve increased the federal funds rate several times over the last 18 months to try and temper high inflation, and today, that rate remains paused at a 23-year high. That may be bad news for borrowers, but savvy savers can benefit from today's high-rate environment. Opening a long-term CD is one way to do so.
Some of today's leading long-term CDs with 5-year terms currently offer annual percentage yields (APYs) from 4.30% to 4.55%.
To put that into perspective, a $10,000 5-year CD at 4.30% would produce $2,343.02 in interest over the CD term for a total balance of $12,343.02 after five years. Or, if you open a $10,000 5-year CD with a rate of 4.55%, you would earn $2,491.66 in interest over the CD term for a total balance of $12,491.66 after five years.
Lock in today's high rates with a long-term CD now.
The Fed may cut rates by the end of spring
"If one feels that interest rates are going down, they might want to lock in the rate for the longer term (5-year CD)," says Steve Azoury ChFC, owner of Azoury Financial.
That's because CDs offer fixed rates for the duration of their terms. So, if you open a long-term CD now, and rates fall in the future, you'll continue to earn today's high returns until your CD matures.
That may be an appealing reason to tap into a long-term CD this spring. After all, the inflation rate has cooled significantly from post-pandemic highs. In turn, most experts agree that the Fed will start reducing interest rates later this year.
And, those rate cuts could come as soon as later this spring. But if you open one now, you can lock in one of today's high CD rates for the duration of your CD term.
A long-term CD can help with financial spring cleaning
Spring cleaning is a common event in households across the United States this time of year. But chances are that your home isn't the only thing that could use some cleaning up this time of year. If you aren't careful, your finances can get messy over time. So, you may also want to do some financial cleaning this spring, and a long-term CD could help.
For example, do you have idle cash that has been losing value because it's not earning any interest? Or has the balance in your high-yield savings account grown to more than you need for an emergency fund? If so, you may want to consider opening a long-term CD with that money to protect your purchasing power and lock in today's high rates for years to come.
Open a long-term CD to earn more interest on your money today.
The bottom line
This spring could be a smart time to lock in returns with a long-term CD. Not only are interest rates high at the moment, but most experts expect rate cuts later this year. And, opening a long-term CD now makes it possible to lock in today's high rates no matter what happens with the future rate environment. Consider opening a long-term CD now to tap into these benefits.
