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2023 has been a difficult year for borrowers. Thanks to decades-high inflation and a series of aggressive rate hikes meant to tame it, borrowers paid significantly more for credit than they would have just a few years ago. At the same time, savers have been able to benefit from today’s high rates with substantial returns on vehicles like high-yield savings and certificates of deposit (CD) accounts.
The window of opportunity on these account types, however, may be closing. Those looking for CDs, in particular, should strongly consider acting this month before the rate environment becomes less favorable. Below, we’ll break down why savers considering a CD should open one now.
Start exploring your CD account options here to see how much more interest you could be earning.
3 big reasons to open a CD this December
Here are three big reasons why you may want to open a CD before the year is out.
Rates are very high
The most obvious reason to open a CD now is the high rate savers can secure. Whether you’re considering a short-term CD (12 months or less) or a long-term one (multiple years), you can secure an APY of 4% to 5% online right now. Select savers may even qualify for a rate as high as 7%. That’s a significant amount of money to be made simply by transferring your funds from one account type to another.
How much money are you potentially looking at? A $5,000 deposit into a 1-year CD with a rate of 4.5% would result in $225 in interest by the time it expires. The same deposit amount in a 3-year CD with the same rate would leave savers with an extra $705 by the time it expires. Plus, those rates are locked, so you’ll earn today’s APY long into the future, even if the overall rate climate becomes less favorable for savers.
Get started with a high-interest-earning CD account here now.
But rates may drop in 2024
Higher interest rates on CDs have come about due to the Federal Reserve’s battle against inflation. But that battle may be won in 2024 as the Fed gets closer to its target inflation rate goal of 2% (it currently sits at 3.2%). If inflation cools enough in 2024, rates will remain paused and can potentially even drop at some point.
So, if you want to earn the highest rate possible, it makes sense to open a CD this month ahead of potential rate drops next year. While those rate decreases are unlikely to be dramatic, every dollar counts, particularly when you know that you could have made more by acting aggressively a few months sooner. By opening a CD this December, you’ll have made the right money move at the right time.
The alternatives aren’t as beneficial
While high-yield savings accounts also have high rates right now, they’re not quite as high as the best short-term CDs. Plus, the rates on high-yield savings accounts are variable, meaning that they’ll change (and drop) as the rate climate cools.
CD rates, by contrast, are locked for the full CD term (although you’ll need to pay an early withdrawal penalty to get your money before the term expires). And regular savings accounts have negligible interest rates currently with the national average sitting at just 0.46%, according to the FDIC. So you’re essentially losing money by not transferring your funds into a CD instead.
The bottom line
While there’s no perfect time to make any financial decision, you’d be hard-pressed to find a better moment to open a CD than right now, in December 2023. By doing so, you’ll immediately reap the benefits of today’s high interest rates and you’ll have them locked against the prospect of a rate drop to come in 2024. Plus, when stacked against the alternatives, like high-yield savings and regular savings accounts, the benefits of a CD account become even clearer. As usual, however, be sure to do your homework in advance in order to find an account with the best rate and minimal fees and penalties.
