Should you open a long-term CD this December?

If you were a saver looking for a safe, predictable and effective way to grow your money in much of the last two years, you'd be hard-pressed to find a better alternative than a certificate of deposit (CD) account. Thanks to inflation and a series of Federal Reserve interest rate increases, returns on these accounts jumped exponentially from where they were in 2020 and 2021. Rates barely 1% then were over 4% in 2023 and 2024 — and they were and remain fixed, meaning that they'll remain the same until the CD account matures.

But the economy — particularly the interest rate climate — is evolving again. And that can and has affected what savers can earn on these accounts. With inflation down to around 2% now (from a decades-high near 9% in June 2022) and two interest rate cuts already issued in 2024, the benefits of opening a CD account are starting to fade. But that doesn't mean they can't still provide value and a big return, particularly if savers opt for a long-term CD (longer than 12 months) right now. Below, we'll break down three reasons why it could be worth opening a long-term CD this December.

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Why you should open a long-term CD this December

Here are three major reasons why opening a long-term CD this December could be a smart move:

Rates are still competitive

Are interest rates as high as they were earlier this year? They're not. In June 2024, for example, savers could earn a 4.61% rate on a 3-year CD or a 4.50% rate on a 5-year CD. Now, you could potentially lock in a 4.20% rate on the 3-year option and a 4.35% rate on the 5-year account. 

So, yes, they're not quite as high as they were earlier in the year but they're still competitive, resulting in hundreds and even thousands of dollars in earned interest, depending on the rate you secure and your opening account deposit amount. Calculate the return you could earn by opening one of these accounts today. You may be surprised at how much you can still potentially make.

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It'll prevent frivolous spending

Spending this holiday season is expected to exceed 2023. And if there's ever a time when the temptation to overspend, potentially for frivolous reasons, is high, it's in December. But a CD, particularly a long-term one, can help prevent that temptation both now and into 2025. That's because any money you deposit into a CD will be unavailable for use until the CD matures. 

The only way you'll be able to regain access is by paying an early withdrawal penalty, which can be exorbitant depending on the lender. Understanding this dynamic, then, and the desire to avoid overspending, it may make sense to open a long-term CD account this month.

The window of opportunity is closing

As can be seen in the minor — but still obvious — drops in CD interest rates from June to December 2024, the window of opportunity to earn a high return on a long-term CD is closing. With another Fed rate cut possible for later this month (the CME Group's FedWatch tool has it as a 62% likelihood), CD rates will continue to decline, even if not in direct proportion to the federal funds rate. 

Waiting to open an account, then, could be a mistake that will become costlier as additional rate cuts are issued. Put another way: Interest rate cuts are likely but additional hikes aren't, particularly now. It's beneficial, then, to lock in a long-term CD rate for as long as you can part with the funds, starting this December.

Learn more about your long-term CD options here now.

The bottom line

The benefits of opening a long-term CD remain relatively similar to what they were earlier in 2024 and in 2023: High interest rates, a predictable and locked return and protection from the temptation to overspend. This December, however, with the potential for rates to decline further in 2025, it becomes even more important to explore this unique savings account type. There's no guarantee of better savings account opportunities ahead, making now a smart time for many to deposit some money into a high-rate, long-term CD while these accounts are still readily available.