Should you open a CD before the next Fed rate hike?

Interest rates could be heading up after the pause in June. At least, that's what it appears like ahead of the Federal Reserve's next meeting later this month. 

Specifically, minutes released from the Fed's June meeting noted some officials supported raising rates then, by one-quarter of a percentage point. While that sentiment was ultimately overruled by the 11 voting members of the Fed's interest-rate-setting committee, the likelihood of keeping rates untouched in July seems small. In fact, many experts expect the Fed will raise rates at least twice more in 2023.

While higher rates make everything from credit cards to mortgage refinancing more expensive, they do have one benefit: higher interest rates on savings vehicles like high-yield savings and certificate of deposit (CD) accounts. Rates on these accounts are higher now than they've been in years, making them an attractive option in an otherwise uneven economic climate.

But with another Fed rate hike looming, should you open a CD now, or should you wait? Start by exploring your CD options here to see how much more interest you could be earning.

Should you open a CD before the next Fed rate hike?

As most experts will tell you, timing the market is difficult, if not impossible. And timing the planned actions of the Federal Reserve is equally as hard. If you think you could potentially earn a higher APY on a CD by waiting for the Fed's next rate hike, it may make sense to wait for that decision. But if you wait until then, you'll essentially be losing money in the interim.

Interest rates on CDs now are in the 3% to 5% range or higher, depending on factors such as which lender you choose. While you may be able to secure a marginally higher rate following the Fed's next bump, you will have also lost out on any interest you could have earned by opening a CD before then. And if the Fed decides to keep rates as is, you'll have waited for no appreciable benefit.

That's why it may make sense to open a short-term CD now. These CDs, which range in terms from three to 12 months, can capitalize on the high-rate environment while still giving you the flexibility to move your money into a higher-earning account in the near future.

You won't lock your money away to the point where you can only access it once rates have dropped. At the same time, at least you'll be earning interest at the prevailing high rate. That's still exponentially better than leaving it in a regular savings account, which earns a paltry 0.42% APY, according to the latest FDIC numbers.

In short: Yes, you may be able to earn a greater interest rate by waiting for the Fed's next increase. But you'll also be losing money by not putting at least some of your funds into a high-rate CD now. So you may be best served by opening a short-term CD now and laddering your funds so they expire in time to open a new CD at the presumably higher rate.

Explore your CD account options here now and start earning more interest today!

Other reasons to open a CD now

While a high interest rate now - and a potentially higher one in the future - is a compelling reason to open a CD, there are other advantages to opening a CD. Here are two other reasons you may want to consider opening a CD now:

The rate is locked

Not only does a CD come with a higher rate now, but it will keep that rate for the duration of the CD's term, regardless of any changes by the Fed or in the larger economy. Unlike rates on high-yield savings accounts, which are adjustable and change daily, CD rates are locked in until the CD matures, providing savers some predictability and security in what has been an otherwise volatile rate environment.

Your money is protected

Not only is a CD FDIC-insured up to $250,000 per account, per institution - it's also protected against any withdrawals or usage you would otherwise access your savings for. If you pull out funds before the term expires, you'll face early withdrawal penalties.

It can be tempting to tap into readily available funds for expenses you could do without. By putting that money into a CD, you won't be able to use them for unnecessary purchases, thus letting your money grow at a high rate, uninterrupted by any daily temptations to use it.

Learn more about your CD options here now.

The bottom line

While it may be tempting to wait for the Fed's next potential rate hike to open a CD, now is actually a great time to do so. By opening a short-term CD, in particular, savers can immediately take advantage of today's high rates and start earning interest while also giving themselves the flexibility to move that money into a higher-rate CD when it expires in the next few months.