Why you should open a long-term CD before the December Fed meeting
December is often a time filled with holiday gatherings, shopping and cooking. This year, however, it also may be a smart time to reevaluate your finances.
This may mean moving your money from some traditional, low-interest earning accounts to different, higher-earning ones. With inflation down significantly from its 2022 high point and two Federal Reserve interest rate cuts already issued in 2024, the returns on high-yield savings and certificates of deposit (CD) accounts have started to decline. And with the strong likelihood of an additional interest rate cut for when the Federal Reserve meets for the final time in 2024 on December 17 and 18, the window of opportunity could soon be closed.
To take advantage while they still can, then, savers should strongly consider opening a long-term CD now, before that December Fed meeting. Below, we'll explain why.
Not sure if a CD's still worth it for you? See how much more you could be earning here.
Why you should open a long-term CD before the December Fed meeting
Here are three reasons why savers may find it beneficial to open a long-term CD (with a term longer than 12 months) in advance of the December 2024 Fed meeting:
Rates may start declining in advance
It's important to remember that lenders don't need to wait for a formal Fed action to start changing their offers to savers. They can — and often will — adjust their rate offers in anticipation of a formal rate hike or cut. And with the CME Group's FedWatch tool pegging a 25 basis point cut at an 86% likelihood now, many will start lowering their rates now.
Waiting, then, won't make sense. With 18-month CD rates around 4.30% and 2-year CD rates at 4.25% right now, it can be advantageous to lock these returns in while they're still available. If the Fed cuts rates when they meet later in December, you may regret not having acted earlier in the month.
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Opening a CD now can prevent holiday overspending
Are you concerned about going over budget this holiday season? With expectations that holiday spending will exceed that from 2023, it may make sense to add an incentive to limit your shopping tendencies. And a CD is a great way to do just that, thanks to its early withdrawal penalties for savers who access their funds prematurely.
By depositing some of your money into one of these accounts now, you can more easily prevent holiday overspending than you would have by maintaining the same ease of access. Consider moving the funds now, then, before the Fed cuts what you otherwise could have earned.
Rates will be fixed
Arguably the most important reason to open a long-term CD now, before December 18, is to take advantage of a high, fixed rate for a long time. You can lock in an elevated CD rate before any Fed rate cuts – and keep it for 18 months or 10 years or somewhere in between. This will ensure elevated returns for years to come, regardless of any volatility or additional interest rate cuts issued during that period. Because of that fixed rate, you'll be able to predict exactly how much you'll be able to earn with the account, unlike regular savings or high-yield savings accounts that have variable rates subject to bounce up and down based on the wide rate climate.
The bottom line
With rates set to decline even before the Federal Reserve gathers again this month, the strong temptation to overspend during the holidays and a high (fixed) interest rate, many savers can benefit from opening a long-term CD right now. Before doing so, however, be sure to calculate exactly how much you can afford to deposit to circumvent having to pay an early withdrawal penalty in 2025 (or sooner).
