How to make money with a CD this fall

Thanks to inflation and a higher federal funds rate, certificate of deposit (CD) interest rates have increased exponentially in recent years. CD interest rates barely broke 1% a few years ago. By comparison, today's average 12-month CD rate, as of August 22 2024, is 1.80%. And many of the best 12-month CDs have rates over 5% right now.

However, now that inflation has been consistently cooling, this has led to slightly lower rates on CDs for savers. Still, even with the slight dip in CD rates, these savings vehicles remain one of the best options to consider right now. But the key is using the right strategy to maximize your earnings before rates drop further. Below, we'll break down four expert-backed ways to make money with a CD this fall.

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How to make money with a CD this fall 

The following strategies can help you maximize your CD returns this fall, according to the experts we interviewed.

Shop around

Experts say one of the best ways to make money with CDs this fall is to comparison shop for the best rates. 

"Definitely shop around," says Ryan Cravitz, retirement income certified professional with Cravitz Financial & Insurance Solutions. "Online banks and credit unions often offer better rates than traditional brick-and-mortar banks."

Cravitz also recommends keeping an eye out for promotional CDs. "Some banks offer promotional rates for new customers or new deposits. Just make sure that you are aware of any conditions that may be associated with these types of promotions," says Cravitz. For example, some financial institutions may require you to deposit a certain amount to qualify for the promotional CD rate.

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Select the right CD term

When shopping for a CD, remember to select a CD term, or length, that aligns with your liquidity needs. For example, if you're saving to buy a home in three years, open a 3-year CD.

"As is always the case when purchasing CDs, make sure to align your potential cash needs with the maturity of the CD," says Jason Dall'Acqua, certified financial planner and  founder of Crest Wealth Advisors. Doing this can help you avoid early withdrawal penalties, too.

Open long-term CDs

If the Fed cuts rates as expected in September, some experts think long-term CDs will offer higher rates than shorter ones.

"Assuming the Federal Reserve does indeed begin cutting interest rates in September, both short and long term rates will continue to fall, with short-term rates likely falling faster," says Stephen Kates, principal financial analyst at RetireGuide.com. 

And if that happens, Kates says that over a multiple year timeframe, a long-term CD will offer a better rate of return than a short-term CD even though many short-term CDs offer higher rates right now.

Build a CD Ladder

Another strategy experts often recommend is creating a CD ladder. You can do so by opening CDs with a variety of maturity dates. "This strategy gives you regular access to a portion of your money," says Cravitz. For example, he says you might have one CD mature in three months, one in six months, another in 12 months and so on.

"I believe one of the most effective CD laddering strategies is matching cash flow needs to the time period and investment amount of each chosen CD that will be held to maturity," says Josh Gallogly, certified financial planner and managing member and founder of Milestones Financial, LLC.  "This can help ensure adequate cash flow so other long-term investments do not have to be sold to meet regular, ongoing obligations," Gallogly says.

Start working on your own CD ladder today.

The bottom line

Even with CD rates experiencing a slight decline, there are strategies you can use to make money with them this fall, such as shopping around, building a CD ladder and locking in long-term rates if they match with your time horizon. "You still have the opportunity to lock in annual returns of 5% or more on 1-year CDs and 4% or more on 3-5 year periods," says Dall'Acqua. 

"CDs are a conservative strategy, so they cannot be the sole investment for your retirement or investing goals," says Kates. "However, they are excellent at providing a healthy return without a risk of principal loss." When investing in CDs, Kates says, "Just be sure to only invest money in a CD that you know you won't need before the term expires." That way, you avoid losing money due to early withdrawal fees and penalties.