What CD terms should you open before 2025? Experts weigh in
In recent years, certificates of deposit (CDs) have been a popular savings option for those looking to park their money safely and earn a good return in the process. A year ago, the national average rate for a 12-month CD was 1.86%, according to the Federal Deposit Insurance Corporation (FDIC). At the same time, you could find numerous top-performing CDs offering yields over 5%, depending on the term.
Today, CD rates generally aren't as high as they were during their recent peak. The Federal Reserve's recent decisions to lower the federal funds rate have influenced the rates offered on CDs and other deposit accounts. Currently, the average yield on a 12-month CD is slightly lower at 1.83%, but the best CD rates are now in the 4% range.
Despite the lower rates, CDs are still a smart investment, providing a safe way to earn a predictable yield on funds you want to shield from market volatility. The key is to choose the right CD term to maximize earnings while meeting your goals. With multiple term lengths to choose from, expert guidance can help you select the best CD term for your situation.
Find out how much you could earn with the right CD account today.
What are the best CD term lengths to open before the new year?
When choosing a CD term, consider your goals and how soon you'll need to access your funds. Remember, CDs typically offer much higher rates than regular savings accounts. For example, CDs with yields above 4% currently earn around 10 times the average savings account rate.
To earn the full yield on a CD, you must lock your money in the account for its entire term. If you need to access the funds before then, you'll likely face an early withdrawal penalty. As such, it's wise to choose a CD term that matches your expected timeline for when you'll need the money.
"First and foremost, a term decision on a CD should revolve around the saver's goals," says certified financial planner Rockie Zeigler III of RP Zeigler Investment Services. "Why are they buying a CD? Do they have a purchase they need to make in the future and don't want to risk their cash in the stock or bond markets? If so, a CD might be a great place to park some cash until that expense is due." With careful planning, you can time the CD's maturity to align with your goals.
Compare today's top CD rates here.
Choosing a long-term CD vs. a short-term CD
If you anticipate CD yields will continue to decline, opening a long-term CD account of three, five or even 10 years could help you earn today's higher rate over the long haul. This strategy only makes sense if you're certain you can lock your money in the CD account for the entire term to benefit from the higher interest rate. It's worth noting that you might currently find short-term CDs offering rates that are just as good or higher than those of long-term CDs.
"While inflation has cooled, the higher prices it's brought over the past few years aren't going away anytime soon," says Alex Beene, a financial literacy instructor at the University of Tennessee at Martin.
"Some CDs with three- and six-month terms currently offer a yield just as good as their year or longer counterparts, normally around the 4% to 4.5% range. Locking in for that short period ensures you get a solid return on your money, but that money will also be available to you after a short wait if you need it," says Beene.
This flexibility to access your money sooner might allow you to reinvest at potentially higher yields if rates increase.
Laddering CDs with different terms
Can't decide whether to choose a short- or long-term CD? You might consider a CD ladder strategy, which spreads your savings across multiple CDs with different maturities. This method allows you to lock in higher rates on longer-term CDs while keeping the flexibility to reinvest when shorter-term CDs mature.
"If the saver is considering a CD and does not have a purchase on the horizon they are saving for, staggering or laddering CDs of various maturity dates can be a good strategy," says Zeigler. "If rates rise, they have money coming due in the short term. If rates fall, they have money locked up for the long-term."
The bottom line
Whether you choose a short-term or long-term CD, locking in rates now before potential rate cuts in 2025 could be beneficial. As Beene notes, "The recent rate cuts by the Fed have already produced small drops in the rates of CD and savings accounts at many major banks, and we're going to see that continue if interest rates drop. If you want to lock in a certain rate a CD currently provides, it would be a good idea not to wait."
