2 Reasons Why It May Make Sense to Put Your Money Into a CD Right Now

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KEY POINTS

  • A CD is a good place for money you want to keep safe and earn interest on, but don't have a long enough timeline to invest.
  • With the drop in inflation, the Federal Reserve may ease up on rate hikes, resulting in lower rates on CDs.
  • CDs are FDIC-insured, so you can sleep at night knowing your money isn't at risk in a bank collapse.

You've done it -- you've scrimped and saved up a chunk of cash, and now you want to make sure it's safe for the future. But you don't have a long enough timeline for this money to make investing it worthwhile (after all, stocks and other assets might not earn you a sure return over the short term). Rather, this is money for a house down payment, or your dream vacation, or some other goal for the next few years.

You would like to earn a return on it, though, and are okay with being unable to withdraw or add more money to it for a period of time (say, six months to five years). And you'd like to find a new account for it, rather than just adding it to your savings account. What to do? Why not consider opening a certificate of deposit, also known as a CD?

Thanks to the Federal Reserve's rate hikes over the last year, CDs are a pretty good prospect these days. Those rate hikes were an attempt to temper inflation, and they may be starting to work, as the most recent Consumer Price Index Summary showed a 4.9% rate of inflation across all categories -- a great improvement over June 2022's 9.1%, which was a 40-year high. Since we're seeing this drop, right now might be a good time to jump on a CD, if you've been considering it. Here are two reasons why.

1. CD rates may fall

We've seen a whopping 10 increases to the federal funds rate since March 2022, and the most recent one on May 3 brought the rate from 5% to 5.25%. It's worth noting that this is not the consumer interest rate; the Federal Reserve doesn't set that. The federal funds rate is what banks charge each other for overnight borrowing, but it does have an impact on the interest rates you and I receive on things like credit cards, personal loans, and CDs.

What was interesting about this most recent rate hike (yes, I know using the word "interesting" in this context might seem a bit weird; go with me here) is that the Federal Reserve left open the possibility of taking a break on future ones. As reported by NBC, Fed Chair Jerome Powell noted that the Fed "may not be far off, or possibly even at" the point where further rate hikes won't be needed.

What does this mean for generous rates on CDs? It likely means that we'll see a drop in those rates. So if it's a CD you want, now might be a good time to take a look at the best CD rates, find the right account for you and your money, and lock it up before rates fall.

2. CDs can give peace of mind

Another major throughline in the world of money this year has been several high profile bank collapses. The Silicon Valley Bank collapse in March was actually the largest bank failure since the Great Recession. The news of shake-ups in the banking industry could rightly lead you to wonder if your money is safe in the bank. And the good news is that CDs are one of the account types that qualify for FDIC insurance.

The FDIC insures customer deposits at banks, to the tune of $250,000 per eligible account (checking, savings, money market, and CDs). If you have questions about whether the banks you're considering opening a CD with are covered, you can check using the FDIC's BankFind Suite.

CDs aren't right for every person or every bit of money. But if you've been looking for a new home for some cash, a CD could be a good bet now, while rates are still generous.

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Rates as of Jun 23, 2024 Ratings Methodology
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Citizens Access® Savings Capital One 360 Performance Savings
Member FDIC. Member FDIC.
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Rating image, 4.00 out of 5 stars.
4.00/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
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APY: 4.50%

APY: 4.25%

Min. to earn APY: $0.01

Min. to earn APY: $0

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