Why you should open a long-term CD before the July inflation report
Certificate of deposit (CD) accounts have been smart and effective ways to grow your money in recent years, thanks to inflation and a higher rate climate. As a result, rates on CDs grew exponentially from where they were just a few years ago. Now, it's not difficult to find an account with a rate of 4% or higher.
But CDs don't operate precisely like other savings vehicles do.
Savers will need to commit to leaving their money in the account for the full CD term or risk having to pay an early withdrawal penalty for taking it out before maturity. And, there are multiple terms to choose from, with short-term ones lasting less than 12 months and long-term options lasting multiple years. But with the next inflation report scheduled for release on July 11 (detailing June's inflation rate), some savers may be wondering which option is better for them now. For many, the answer is clear. Below, we'll explain why you should open a long-term CD before the July inflation report is released.
See how much more interest you could be earning with a top long-term CD here.
Why you should open a long-term CD before the July inflation report
Here are three reasons why you should strongly consider opening a long-term CD before the next inflation report is released.
Rates are only slightly lower than short-term CDs
Sure, rates on short-term CDs are slightly higher than long-term accounts right now (a direct reversal from historic trends). But the difference is negligible (generally less than a full percentage point). So it makes sense to take advantage now. You could potentially earn hundreds and even thousands of dollars right now, depending on the amount you deposit and the rate you lock in. CD rates change often, however, so you should shop around and consider being proactive while rates this high are still readily available.
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Rates will likely fall soon
As inflation continues to fall, a cut to the federal funds rate becomes more likely. And while those cuts may not come as often as many anticipated at the start of the year, there's likely to be at least one cut before the end of 2024. When that comes, rates on savings vehicles like CDs will fall in tandem. So don't wait for that to happen. And remember that even a hint at an imminent rate cut could reduce what lenders offer on these products, so there may be less time to take advantage of today's high rates than it seems.
Your returns will be locked - and predictable
CD rates, as mentioned, are locked and will remain the same for the full CD term. That's a major advantage right now in the face of rate cuts. No matter what rates drop to during your long-term CD account lifespan, you'll still earn the high rate you opened the account with. These returns, unlike those that can be earned with variable-rate high-yield savings accounts, will be both locked and predictable. In an evolving rate climate that's a major advantage when compared to other popular alternatives.
The bottom line
Whle both short-term and long-term CDs are advantageous to open now, there's a strong argument to be made for pursuing a long-term one as soon as possible, preferably before the next inflation report release. Rates on these accounts are still comparable to many alternatives (even if they're slightly lower). And considering that these rates are locked and that, if you wait, you could be shopping for a CD in a lower rate climate, it makes sense to lock in the highest rate long-term CD you can find now. Just be careful to only deposit an amount you're comfortable parting with for the full CD term or you could wind up paying the early withdrawal penalty to regain access to your funds.
