Should you open a long-term CD before the January Fed meeting?
Certificate of deposit (CD) accounts have long been considered a smart and effective way to grow your money. And in the inflationary economic period of recent years, they arguably became a mandatory way to do so. With interest rates on these accounts exponentially higher than they were in 2020 and 2021, savers were able to secure returns of 4% to 5% or even better, no matter the amount deposited or the term (length) of the account. But as inflation cooled, the Federal Reserve issued three interest rate cuts last year, reducing what savers could earn on CDs.
That noted, inflation ticked up in the two most recent reports released by the Bureau of Labor Statistics. And the pace of additional interest rate cuts in 2025 is likely to be slower than it was in the final months of 2024. Ahead of the next Federal Reserve meeting set for January 28, then, savers may be pondering the benefits of a CD account, specifically in a long-term version. Below, we'll break down what to consider before the Fed meets for the first time in 2025.
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Should you open a long-term CD before the January Fed meeting?
Opening a long-term CD before the January Fed meeting is not a bad idea, particularly for savers looking to earn as much money as quickly as possible. But it's not as urgent as it may have been in previous months ahead of a presumed interest rate cut.
Lenders tend to reduce their interest rates on accounts like CDs before the Fed makes another cut official, requiring savers to be proactive to secure a high rate while still available. However, that's less of a concern ahead of the next Fed meeting. Most experts do not expect another cut to the federal funds rate at the next meeting (the CME Group's FedWatch tool has the likelihood of rates staying the same at a 97% certainty currently). So there's less urgency to act now. But that doesn't mean opening a long-term CD, in particular, can't be beneficial at this point in January. It still can. Here are three reasons why it can still be the right move:
You'll start earning more right away
Delaying the opening of a CD will inevitably delay your earnings potential. And with inflation still problematic and interest rates elevated, leaving money on the table right now doesn't make sense. So don't do so.
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Rates will inevitably fall again
Sure, interest rates may hold steady in January and February but most economists expect them to fall again later this year, possibly as soon as the spring. And when they do, rates on accounts like CDs and high-yield savings accounts will decline, too. Waiting for this loss in savings interest potential, then, should be avoided. It's just important to open an account with a deposit that you can easily afford to part with for the full, long term to avoid having to pay an early withdrawal fee to regain access.
You'll lock in long-term protection
Long-term CDs can mature as early as 18 months or as long as 10 years, giving you a wide swath of options to secure long-term protection for your funds. Depending on the initial deposit and the interest rate secured, this can lead to hundreds or even thousands of dollars worth of earned interest, simply obtained by timing the CD interest rate climate correctly.
The bottom line
A long-term CD can be advantageous for savers to open now, even if the immediate forecast for additional rate cuts shows them staying static this month. By acting now savers can start earning more on their money right away and they'll get ahead of inevitable reductions to come later in the year. And this fixed, long-term protection will allow them to earn a significant return, regardless of what happens to the wider rate climate in 2025 and beyond.
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