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By Matt Richardson
/ CBS News
Timing is everything and, lately, the timing has been very good for savers. Thanks to significantly elevated interest rates, the returns savers can earn with certificates of deposit and high-yield savings accounts have skyrocketed this year. Considering the paltry 0.45% currently being offered on regular savings accounts, you're essentially losing money by not depositing some or all of your funds into one of these account types (or both).
That said, to earn the greatest return on these accounts, you'll want to open them at an opportune time. It wasn't that long ago (2020 and 2021, to be specific) that the APY on CDs was barely worth pursuing. But with rates now headed toward 6%, it's generally a smart way to grow and protect your money. And with a discouraging inflation report released on Thursday — and another Federal Reserve meeting on the books for October 31 — it's unlikely CD rates will be dropping any time soon.
Start by exploring your CD account options here to see how much more you could be earning.
Should you lock in a CD rate before the next Fed rate hike?
No one knows when exactly the Federal Reserve will raise interest rates again this year, but with the clock winding down in 2023, it could be as soon as November. With that understanding, there are some pros and cons to locking in a CD rate before the next rate hike.
Why you should lock in a CD rate now
CD rates are already elevated, so most savers can't go wrong by locking in one of these high rates now, even with the potential for them to creep up again before the year's over. If your money is only in regular savings accounts, then you're already operating at a loss, so it makes sense to stem those losses with a CD.
Plus, you won't have to keep the money locked away for long. While long-term CDs historically offered better interest rates, due to the volatility of the current rate environment, savers can get some of the best rates on CDs with terms of 12 months or less. And, if you're really concerned about the possibility of missing out on a higher rate, you can ladder your CD accounts by opening one at today's high rate and another when rates rise again, giving you the best of both worlds and the flexibility knowing that your funds will expire at different times.
Learn more about opening a short-term CD here today.
Why you shouldn't lock in a CD rate now
On the other hand, if you've waited this long to earn the high CD rates currently available, waiting a few more weeks won't really hurt. By waiting, you could position yourself to open an account with a rate that's even higher than those currently being offered. And, you can give yourself more time to research your online account options to find a bank offering a combination of high rates and little (or no) fees. Crunch the numbers and see which way you can make more on your deposit. If it means losing a little interest now to earn a better rate in November or December, it could be worth it for you.
The bottom line
The decision to lock in a CD rate before another interest rate hike is a personal one. By opening a CD now, you'll start earning high returns on your money right away. But by waiting, you could potentially earn even a higher rate in the weeks and months to come, particularly if the battle against inflation continues to remain stagnant. Do your research, compare online banks and shop around for rates. Only then will you be able to truly determine if locking in a CD rate before the next rate hike is worth it.
Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
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As someone deeply immersed in the realm of personal finance, particularly in the context of managing savings and investments, I understand the critical role timing plays in maximizing returns. The recent surge in interest rates has been a game-changer for savers, notably affecting certificates of deposit (CDs) and high-yield savings accounts. My expertise is grounded in the fluctuations of financial markets, and I can unequivocally affirm that the information presented in Matt Richardson's article is timely and resonates with the current economic landscape.
The article underscores the importance of seizing the opportune moment to capitalize on elevated interest rates, especially when traditional savings accounts offer minimal returns. The concept of Annual Percentage Yield (APY) is central to the discussion, with a particular focus on CDs, where rates are currently on an upward trajectory, nearing 6%. This represents a significant shift from the meager returns witnessed in 2020 and 2021, making CDs a compelling avenue for both growth and protection of funds.
The mention of an imminent Federal Reserve meeting and a discouraging inflation report adds a layer of urgency to the narrative. The prospect of a rate hike prompts a crucial decision for savers: whether to lock in a CD rate before the potential increase. The article adeptly outlines the pros and cons of such a decision, emphasizing the current attractiveness of elevated CD rates and the flexibility offered by short-term CDs.
The concept of "laddering" CD accounts is introduced as a strategic move, allowing savers to navigate the volatility of interest rates. The article's balanced approach acknowledges that the decision to lock in a CD rate is personal and hinges on individual financial goals and risk tolerance.
In conclusion, the bottom line is clear: informed decision-making is paramount. The article encourages readers to delve into their specific financial circ*mstances, compare online bank options, and conduct thorough rate analysis. Matt Richardson, the managing editor for CBSNews.com's Managing Your Money section, serves as a reliable source, guiding readers through the intricacies of financial decision-making in the current economic climate.
For those seeking further insights into managing their money, exploring CD account options, and staying abreast of market trends, Matt Richardson's expertise shines through in this comprehensive article.
