I Haven't Put Money Into a CD Yet -- Here's Why That's About to Change

CD yields are the highest they've been in years. These accounts can be a great way to take advantage of the high-interest-rate environment by locking in a certain interest rate for a period.

Despite higher rates for long-term savings, I haven't put any of my own money into CDs. But that's about to change. Here's why I'm planning to make a significant shift in where I keep my money soon.

Where CD yields stand now

As of April 2024, CD rates are the highest they've been in several years. The last time the average 1-year CD rate in the United States was at this level was more than 15 years ago.

You can get CDs from reputable financial institutions with yields that would have seemed absurd just a few years ago. Some of the most reputable banks on our radar offer 1-year CD rates of 5% or higher. You can also find 5-year CDs with interest rates over 4%, a high level of income to lock in for half a decade.

Why haven't I opened a CD yet?

So far, I haven't put any of my money into CDs for two big reasons. First, I'm an avid stock and ETF investor, and there have been some excellent opportunities to put money to work for the long term in recent years. And second, savings account interest rates have risen along with CDs so I really haven't been in a big rush to make a change.

To be sure, you can generally find a better interest rate from a 1-year CD than a high-yield savings account, but they're quite comparable. I personally use SoFi Checking and Savings and get an APY of up to 4.60% from my savings as of this writing. This is close enough to what I could get from a CD that I don't want to give up the financial flexibility of keeping money in savings.

Here's why I'm about to make a big change

The biggest problem with keeping money you won't need anytime soon in a savings account is that the interest rate isn't fixed for any specific period. Sure, I get up to 4.60% APY today, but the bank could literally reduce it tomorrow.

CD and savings account interest rates don't directly depend on benchmark interest rates like the federal funds rate (when you hear that the "Fed raised rates," this is what it refers to). But they do tend to move in the same direction.

The Federal Reserve is widely expected to start lowering rates later this year. Experts disagree about when the rate cuts might start and how rapidly they could happen, but there are virtually no major economists predicting that rates will be higher in a year from now.

In short, CD and savings account yields are likely to start trending downward when the Fed starts lowering rates. So, I'm planning to finally move some of my money from my savings account into a CD (or several) within the next couple of months.

I haven't quite decided what CD(s) I want to use. 1-year CDs generally have the highest rates right now, but I'd prefer to lock in a yield for a little longer. I may end up starting a CD ladder (it's a great time to do so), and I can add to it over time.

The bottom line

To be perfectly clear, there's no guarantee the Federal Reserve will start cutting rates in 2024. In fact, if inflation unexpectedly spikes, it's entirely possible the Fed will have to hold rates steady or even raise them further.

Having said that, the most likely trajectory of interest rates over the next year or two is downward. As a result, savings account and CD yields are likely to gravitate lower, so I'm planning to lock in a relatively high interest rate with my savings in the meantime.