Why you should put $10,000 into a long-term CD before September

There's no question that today's high-rate landscape has paid off in spades for many savers. Many high-yield savings accounts and certificates of deposit (CDs) have offered attractive rates over the last few years, making it easy to maximize the returns on your money. But if you've been sitting on the sidelines, watching your savings earn minimal interest in a traditional savings account, you may want to rethink that strategy. 

The financial markets are signaling a potential shift, so if you want to rake in big interest returns on your money, time may be running out. Rather than continuing to procrastinate, depositing $10,000 of your savings into a long-term CD could be a better plan. Doing so could be your ticket to maximizing your returns — especially if you make that move before September.

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Why you should put $10,000 into a long-term CD now

There are a few reasons why you may want to deposit $10,000 in a long-term CD before September.

Today's CD rates are still high

One of the most compelling reasons to put $10,000 into a long-term CD investment now is the current state of interest rates. CD rates remain at levels we haven't seen in years, and many financial institutions are offering rates of 4% to 5% or more on their long-term CDs.

With a rate that high, a $10,000 investment in a 5-year CD could potentially grow to over $12,000 by the end of the term — and that's without any additional contributions. That means the returns on your CD will significantly outpace the returns typically offered by traditional savings accounts, averaging about 0.45%.

The high rates we're seeing today are a direct result of the Federal Reserve's monetary policy over the past few years. However, this situation is not expected to last indefinitely, which brings us to our next point.

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CD rates are likely to change soon

Now that inflation is cooling, financial analysts and economists are predicting a change in the interest rate environment, and it's likely to occur soon. The Federal Reserve has signaled its intention to begin easing its monetary policy, with the first rate cut of 2024 expected in September. This move is anticipated to be followed by additional rate cuts in the coming months.

When the Federal Reserve lowers its benchmark interest rate, it typically leads to a decrease in the interest rates offered by banks on various financial products, including CDs. This means the attractive rates we're seeing today may not be available much longer.

By investing in a long-term CD before these rate cuts start next month, you can lock in the current high rates for an extended period. This strategy can protect your investment from the anticipated downturn in interest rates, ensuring that your money continues to grow at a favorable rate even as market conditions change.

You'll lock in predictable returns

When you invest in a CD, you're essentially entering into a contract with the bank. In exchange for agreeing to leave your money untouched for a specified period, the bank guarantees you a fixed rate of return. This means that regardless of what happens in the broader economy – whether we face a recession, an uptick in inflation or market volatility – your CD investment will continue to grow at the agreed-upon rate until it matures.

This predictability can be especially beneficial if you're saving for a specific goal with a defined timeline, such as a down payment on a house, a child's education or a major purchase. So by locking in a high rate now, particularly before the rate environment shifts, you can more accurately project your returns and plan for the future.

You'll benefit from compound interest

One often overlooked benefit of investing in a long-term CD is the element of forced savings it introduces. When you commit $10,000 to a CD, you're making a decision to set that money aside for a specific period. This can be an excellent strategy for those who struggle with saving or are tempted to dip into their savings for non-essential expenses, as the early withdrawal penalties associated with CDs serve as a deterrent to accessing the funds before maturity. 

As your CD earns interest over time, you'll also benefit from the power of compound interest. The interest you earn each year will begin earning interest, accelerating the growth of your investment. This compounding effect becomes even more powerful over longer terms, which is why investing in a long-term CD before rates potentially drop can be such a smart move.

The bottom line

The current financial landscape presents a unique opportunity for those looking to maximize their savings. By investing $10,000 in a long-term CD before September, you can take advantage of today's high rates, protect yourself against anticipated rate drops, hedge against economic uncertainty, diversify your portfolio and benefit from compounding interest. That said, it's important to consider your unique financial situation and goals before making any investment decisions. For many savers, though, opening a high-yield, long-term CD now could be a wise financial move.