Should You Open a 6-Month CD Before Interest Rates Drop?

Top 6-month CDs are still paying around 4.00% APY as of right now. But that may not last much longer. In its June meeting, the Federal Reserve held interest rates steady, with the next policy decision expected in late July.

Still, many banks have already started quietly trimming CD and savings rates in anticipation of potential cuts later this year. Even without a formal Fed move, yields could continue to slip.

If you're thinking about locking in a short-term CD, now may be your best shot before rates trend lower.

Why a 6-month CD could be the sweet spot

Short-term CDs let you lock in a fixed return, but still give you access to your cash relatively soon.

It's a step up from a high-yield savings account (which can change rates anytime) but doesn't require tying up your money for years.

That's especially helpful in uncertain markets or if you think you'll need your funds soon.

Right now, some of the best CD rates are up to 4.00% APY on 6-month terms. That's about $200 in interest on a $10,000 deposit, and you'd get your cash back before Christmas!

Consider CD laddering with different terms

If you're working with a larger balance, you might want to spread your cash across multiple CDs with different timeframes.

This strategy is also called CD laddering. It's the perfect way for people to lock in top rates, and stagger maturity dates so they have regular access to their cash.

For example, here's a simple CD ladder spreading $40,000 across four CDs with a $10,000 in each:

Over a two-year period, you could earn $1,815 in interest, while still having access to your initial $10,000 deposits every six months.

By the way, if the Fed begins cutting rates (as is expected to happen before the end of the year), it's likely that all CD terms will drop -- not just the short-term ones. So no matter the CD term you're interested in, it might be smart to lock in your rate sooner rather than later.

When a CD might not be the right fit

CDs are great for money you won't need to touch. But if there's any chance you'll need access before the term is up, they can be a bit restrictive.

Most banks charge a penalty for withdrawing early from CDs. Usually, the fee is forfeiting anywhere from three months to the entire amount of interest earned.

So if flexibility is a priority, a high-yield savings account (HYSA) could be the better fit.

HYSAs are also offering around 4.00% APY right now, but they are exposed to instant rate changes whenever banks want to implement them.

If you value access over a fixed return, a HYSA may be the safer move. (I personally fall into this camp).

Final thoughts

Opening a 6-month CD now could be a smart way to lock in a solid short-term return before rates decline. It's safe, predictable, and doesn't tie up your money for too long.

And with the Fed hinting at rate cuts as early as this fall, this might be your last window to capture top-tier CD yields. Compare today's best 6-month CD rates and start earning more on your cash.