Is a 3-month CD worth opening?
Interest rates are high. In fact, they're the highest they've been in 22 years. While that is unwelcome news for a wide swath of borrowers, it's not all negative. With higher interest rates come higher returns on savings vehicles, like high-yield savings and certificates of deposit accounts. So, if you have one of these types — or plan on opening one soon — you can earn significantly more interest than you would have if you had opened the account a few years ago.
That said, not all accounts are the same, and the benefits of CDs, in particular, vary broadly. This is primarily affected by the term (or length of time) that your CD remains open. Historically, the best rates were reserved for CDs with longer terms. But with the recent rate environment, that hasn't always been the case. Many savers in 2023 have secured higher rates with short-term CDs than long-term ones.
But is a short-term CD really worth opening? What about a 3-month CD, in particular?
Start by exploring your CD options here to see how much interest you could be earning.
Is a 3-month CD worth opening?
As is the case with most financial products and services, the benefit is unique to the individual. However, a three-month CD could be worth opening for you if you fall into one or more of the following categories:
You have your money in a regular savings account
Simply put: If you have your funds sitting in a regular savings account you're losing money. The average interest rate on regular savings accounts is 0.42% currently, according to the FDIC. Compare that to what could be earned with a short-term CD and it's clear that the CD is the better option. Rates on 3-month CDs vary between 4% and 4.75% or higher, depending on the lender in question.
Let's use a $1,000 deposit to evaluate. After three months with a CD at 4% APY, your bottom line will have grown by about $10. But if you left that same amount in a regular savings account over the same time frame, you'd have earned less than $1.
See what CD rates and terms you qualify for here now and start earning more interest!
You're comfortable locking your money away for a few months
To earn the full interest on your CD, you'll need to commit to leaving the money untouched in the account until the term expires. If you withdraw it early, you'll risk being penalized a portion (or all) of the interest you've earned to that point.
While some savers may not like to lock their money away, a three-month term is generally easy to complete. It has the best of both worlds: Added interest that you otherwise would have missed — and a short term so that you have access to your money again relatively quickly. Plus, by locking your money into a CD, you'll protect it from any impulse purchases that you otherwise may have used it for.
You think interest rates will drop
No one can predict every turn of the market. But many signs are pointing toward another pause in interest rate hikes before an eventual drop later in 2023 or in 2024. If you're someone who expects this to happen (and thinks rates will be dropping sooner than later), it may make sense to get some short-term benefit by opening a three-month CD now.
CD interest rates are locked in at the time of the account opening, regardless of what happens in the larger rate environment. So if you're concerned that rates will adjust downward later this year, it makes sense to open a short-term CD now to start earning more interest. This will also give you the flexibility to re-evaluate your plans sooner rather than later.
Learn more about current CD rates and terms here now.
The bottom line
CDs are a safe and effective way to both protect and grow your savings. While different terms come with different rates and benefits, you shouldn't automatically dismiss the advantages of a 3-month CD. These short-term CDs can be especially helpful for those who are otherwise earning paltry interest on their regular savings accounts. They can also be smart for those who are willing to lock up their money for a few months, as well as for those who anticipate an interest rate drop sooner than later.
