Should you open a CD before the June Fed meeting? 3 things to consider now
June 12 is bound to be an interesting day for the economy. Not only will the next inflation report (detailing May's numbers) be released by the Bureau of Labor Statistics that day, but the Federal Reserve will conclude its June meeting then, too. And the Fed will announce its plans for interest rates – which will be influenced by the new inflation numbers.
Against this backdrop, savers may be weighing the opportunity costs of opening select accounts now. While inflation and higher interest rates have made borrowing more expensive, they've resulted in rates on high-yield savings and certificates of deposit (CD) accounts rising exponentially. CDs, in particular, offer savers an attractive middle ground between security and predictable returns. But are they worth opening at this moment – or are savers better served by waiting for the June Fed meeting to conclude? That's what we'll break down below.
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3 things to consider about opening a CD now
While the Federal Reserve has the power to affect what you can earn on CDs, it may not be worth waiting around to see what they decide to do at their June meeting. Here's why:
Rates are already high
Timing the rate climate is difficult, if not impossible, to do. And even if done perfectly, you'll miss out on today's already high rates by waiting for a more opportune time to act. With rates on some CDs as high as 6% or 7% right now, you stand to earn hundreds or even thousands of dollars by opening the right account with the right amount right now. So take advantage while these rates are still readily available. Considering that CD account rates were many times lower in recent years, it's clear that these rates won't stay this high forever. So earn these big returns while you still can.
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Any June change will be negligible
Regardless of your prediction for the June Fed meeting – a rate hike, cut or maintenance of the current rate – any change to the returns lenders offer on CDs will be negligible. Whether the Fed raises rates or drops them, either move is likely to be in the form of a quarter of a percentage basis point. And that's to the federal funds rate. Lenders don't have to make any changes at all, as they generally use the federal funds rate as a guide, not as a direct corollary to what they offer on savings accounts. So don't wait to open an account with the expectation that rates will dramatically change later in June as they're unlikely to do so.
Your money is losing buying power
The average interest rate on regular savings accounts just fell – from 0.46% to 0.45%. That means that funds kept in these accounts are not keeping pace with inflation, losing purchasing power at a time when savers need it badly. It makes sense, then, to move some of these funds into a CD. While a CD won't allow you access to your funds the same way a regular savings account will, the difference can easily be made up by splitting your money between a CD and a high-yield savings account, the latter of which maintains flexibility while earning high returns. Just avoid letting your money stagnate in a regular, low-earning savings account.
The bottom line
While some savers may want to wait to see what the Federal Reserve does in their June meeting before opening a CD account, others may want to act now. And there's a compelling case for being proactive. Rates on these accounts, after all, are already high right now and any June rate change – if there even is one – is likely to be negligible. Finally, any money not stored in either high-yield savings or CD accounts now isn't keeping pace with inflation, so it behooves savers to stem those losses now versus later in June. As is the case with all financial products and services, however, be sure to weigh the pros and cons of CDs against your goals and budget as any account opened before maturity will get hit with an early withdrawal penalty.
