Should You Open a 1-Year CD Before Rates Drop?

The top 1-year CD rates are still around 4.00% -- but they may not stick around much longer.

The Federal Reserve has held interest rates steady for months, and many economists expect cuts before the year is out. The last Fed meeting concluded yesterday, and the next opportunity for a change to rates will be on July 29-30.

So if you've been thinking about locking in a short-term CD, this could be your last chance to grab one before rates start to fall.

What makes a 1-year CD worth considering

The beauty of a 1-year CD is that it allows you to lock in a strong return without locking up your cash for years.

Unlike a multi-year CD, you're not committing for the long haul. And unlike a savings account, you're protected from sudden rate drops.

Right now, the best 1-year CDs pay around 4.00% APY, which means for every $1,000 you deposit, you'll earn about $40 interest.

No more stressing about rate cuts or worrying about market movements. Your return is guaranteed until next summer, when the CD matures.

Different CD terms for different goals

When it comes to CDs, there's no rule that says you have to go all-in on one term.

In fact, splitting your savings across multiple CDs can give you more flexibility and potentially higher overall returns.

For example, you might keep some cash in a 6-month or 1-year CD to stay nimble, while locking in a portion for two or more years to capture a better rate for longer.

Here's what a $10,000 deposit could earn at different CD terms and rates:

If the Fed starts cutting rates, most CD terms will drop across the board. That's why it can be smart to secure some of the best long-term CD rates now if you know you won't need the money soon.

When not to open a CD

CDs aren't ideal if you might need to access your money at the drop of a hat. Most banks charge a penalty for withdrawing before the term ends, often costing you several months' worth of interest.

A high-yield savings account (HYSA) is a better option for short-term needs. Many still pay around 4.00% APY, and you can pull your money anytime. Just know that HYSAs are exposed to immediate rate drops (and some banks have already started lowering yields in anticipation of rate cuts).

If flexibility matters more than locking in a fixed return, stick with an HYSA.

Final thoughts

Opening a 1-year CD right now could be a smart way to lock in a strong return and protect your cash from falling interest rates. It's not a flashy investment. But it's low-risk, predictable, and perfect for short-term savings.

If you've got funds you won't need for a year, don't let them sit idle. Compare today's best 1-year CD rates and start earning more on your savings.