Want to lock in the best CD rate? 3 reasons to make a move right now
When it comes to making good financial decisions, timing can be everything. If your goal is to gain quick returns on your investment, buying the right stock at the right moment is key. If you're trying to maximize what you earn on your savings, taking advantage of a deposit bonus or promotional rate before the offer ends could mean the difference between hefty earnings and lackluster returns. So, it's important to make a move when the right opportunity is at hand.
And the current high-rate environment has presented plenty of good opportunities to savers. For example, many financial institutions have been offering attractive rates on savings vehicles like certificates of deposit (CDs). These fixed-term savings products are a reliable way to grow your money with minimal risk, but the current market conditions have made them particularly attractive.
That may not be the case for much longer, though. If you've been waiting for the right moment to lock in a CD rate, now might be the time to act. Here's why.
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3 reasons to lock in a CD rate right now
There are a few big reasons you may want to lock in a CD rate right now, including:
A Fed rate cut is expected in September
The Federal Reserve has kept its benchmark rate paused at a 22-year high over the last year, but that is likely to change soon — and when it does, it will impact interest rates across the board. Most analysts agree that the Fed is likely to start slashing rates in September, and the CME FedWatch Tool, which uses market data to predict the probability of changes in the federal funds rate, puts the odds of a rate cut in September at 100%.
So what does a Fed rate cut mean for CD rates? If the Fed does cut rates in September as predicted, we can expect banks to follow suit by lowering the rates they're offering on CD accounts. This means that the high rates we're seeing now could start to disappear. But by locking in a CD rate now, you could potentially secure a higher return on your savings for the duration of your CD term, even if rates begin to fall for new CD offerings.
Find out more about the best CD options available to you here.
CD rates are still high — but have already started falling
Right now, it's still possible to find plenty of CDs offering rates over 5%, which is significantly higher than the rates that were offered just a few years ago. These rates are also quite attractive compared to the rates being offered now on traditional savings accounts or even some investment options, so it makes sense to lock one in if you can.
What doesn't make sense is to wait. While today's CD rates are still quite high, we've likely already passed the peak of the high-rate environment — and many banks and financial institutions have already started lowering their CD rates in anticipation of the upcoming rate cuts. As a result, the window of opportunity to lock in these high rates is gradually closing.
More rate cuts are expected over time
The September Fed rate cut is likely just the start. The Fed is expected to slash rates by a total of 1% throughout the rest of this year and into the next. If this occurs as expected, we could see CD rates steadily decline over the coming months.
A 1% reduction in the federal funds rate would likely translate to a similar or even larger decrease in CD rates. That, in turn, could translate to a substantial difference between the rates available now and those available in, say, six months or a year.
Consider this scenario: If you're able to lock in a 5% rate on a 2-year CD now, you could be earning that rate well into 2026. However, if you wait, you might find yourself looking at CD rates closer to 4% or even lower by this time next year. Over the course of a 2-year CD term, this difference could result in hundreds or even thousands of dollars in additional interest earnings, depending on your deposit amount.
While it's always possible that economic conditions could change and alter the Fed's course, the current consensus strongly points towards a decreasing rate environment. By locking in a CD rate now, you're essentially ensuring a guaranteed return even as the broader interest rate landscape shifts downward.
The bottom line
With high rates still available but showing signs of decline, an imminent Fed rate cut on the horizon and expectations of further cuts in the coming months, now may be the ideal time to lock in a CD rate. By acting quickly, you can potentially secure a higher return on your savings for months or even years to come. It's still important to consider your financial situation and goals when making any investment decision, of course, but for many savers, the current CD market offers a compelling case for action.
