Should you open a short-term CD this December?
December can be a hectic time with many things on your to-do list. From shopping to holiday gift-buying to cooking, there's never a dull moment. In the midst of the chaos, it may be best to take a moment to breathe and review your financial situation, particularly with a new calendar year just weeks away.
Against this backdrop, there are some smart money moves you should likely make now and some others you should avoid. With inflation cooling but interest rates still high, it could make sense for many to open a short-term certificate of deposit (CD) account now. In fact, there are multiple reasons why it may be worth opening a short-term CD this December.
Start by exploring your CD account options here to see how much you could be earning.
Should you open a short-term CD this December?
Short-term CDs are considered to be a CD account with a term of 12 months or less. These specific account types have taken on new importance this year, but the window of opportunity could soon be closing. Here are three reasons why you should strongly consider opening a short-term CD this December.
Rates are still high
While inflation is cooling and the long-term forecast is accounting for an eventual rate drop, rates on these accounts are still high now. It's not difficult to find an account with a rate of 5.5%, especially if you're willing to open an account online.
Depending on the amount you deposit, that could lead to hundreds of dollars in interest earned simply by moving some of your funds to one of these accounts. Select savers may even qualify for a rate with a 7% interest rate. Compared to the rates of 1% or less that could have been secured in 2020 and 2021, you'd be hard-pressed to find a better time to open a CD than now.
But rates could fall soon
Many experts expect rates to fall in 2024. And this just doesn't include mortgages. It also accounts for savings and CD accounts. So the rate you could've secured this year is unlikely to be as good if you wait to make a move next year.
While the rate drops aren't expected to be dramatic, they'll still result in less money earned than if you had acted more aggressively while rates were still high. Remember, every dollar counts, particularly when inflation is still persistent. Why not get everything you can by opening a CD now, then?
The alternatives aren't as good
There are a few alternative savings account options you can explore right now, but arguably none are as good as a short-term CD. Long-term CDs, for example, will offer you protection for an extended period (think multiple years), but they don't come with the same high rates their short-term counterparts do.
High-yield savings accounts, meanwhile, are competitive with today's best CD accounts, but the APY is variable, meaning it will fluctuate (and potentially fall) day to day and month to month. And the rates on regular savings accounts are negligible, coming in at an average of just 0.46%. When you can get a short-term CD with a rate many times higher, then, it makes sense to act.
The bottom line
Short-term CDs offer many benefits for savers right now. The only drawback is that they're short-term, meaning savers can only keep those rates for less than 12 months. But with other factors to account for — like today's high rates, the prospect of a rate cut in 2024 and lower-interest-earning alternatives — it makes sense for many savers to act now. Start by exploring your short-term rate options here today.
