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Key Takeaways
- Fed rate cuts are expected soon, so today’s attractive deposit yields likely won’t last much longer.
- But by opening one of the best nationwide CDs, you can lock in a top rate for months or even years, guaranteeing a return that won’t drop when the Fed starts trimming.
- It’s important to do your homework and think through your goals and timeline before signing on the dotted line with any CD.
- A smart CD strategy also includes keeping a separate cash cushion in a top high-yield account you can tap instantly, so you’re never forced to break a CD early.
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With Fed Cuts Coming, Here’s What To Consider Before Opening a CD
The Federal Reserve has kept interest rates elevated all year, but one or more cuts are now expected this fall. When that happens, returns will slip across deposit products—from savings accounts to money markets to certificates of deposit (CDs).
Before that happens, though, you can take advantage of a CD’s special feature: It lets you lock in today’s rate for the full CD term. For example, right now you can secure a guaranteed rate of 4.60% APY for 7 months, between 4.50% and 4.55% for 6 to 12 months, or slightly lower 4% rates for 18 months, 2 years, or even as long as 5 years.
Rates on flexible options like savings and money market accounts, on the other hand, will decline once the Fed begins cutting. But if you open a CD before rates drop, your return won’t budge, no matter how many times the central bank lowers rates.
Before you take the plunge, though, it’s important to be sure a CD matches your financial goals and timeline. Here are three critical questions to ask yourself before committing.
Question #1. How Long Can You Get By Without the Money?
A CD pays a fixed, guaranteed annual percentage yield (APY) if you leave your money untouched for the full term. If you need the funds before maturity, you’ll typically face an early withdrawal penalty. That’s why it’s essential to choose a term that matches your financial timeline.
Not sure how long that is? You don’t have to commit everything to one CD. Many savers open two or more CDs with different maturities. That way, part of your money is available sooner, while the rest earns a longer-term return.
Question #2. What’s the Penalty If You Have to Cash Out Early?
CD early withdrawal penalties vary bank or credit union. The severity can range from mild to harsh. In the worst cases, the penalty can even cut into your principal.
Most commonly, the penalty is expressed as a certain number of months’ worth of interest. The longer the CD term, the bigger the penalty. For example, a bank might charge three months’ interest on CDs of 6-11 months, six months’ interest on 12-23 month CDs, and so on.
Our daily ranking of the best nationwide CDs—plus the term-by-term rankings linked at the bottom of this article—make it easy to compare both rates and penalty terms. But keep in mind that banks and credit unions can change their policies without notice. That’s why it’s critical you confirm the exact penalty policy before opening any CD.
Important
Some institutions list their early withdrawal penalties online. Others don’t, and you may need to call or chat with customer service to get the details. Be aware that not every representative is familiar with early withdrawals—and some may even say you’ll receive the policy after opening the CD. Don’t accept that. Persist until you get a clear answer, as you should never commit to a CD without knowing exactly how its penalty would be calculated.
Question #3. Where Will You Keep a Cash Reserve?
It’s never wise to put all of your savings in CDs. You’ll need a separate emergency cash reserve in a liquid, high-yield account.
The simplest choice is a top high-yield savings account, though a top money market account can work just as well. Many currently pay returns in the mid-4% range, with some offers reaching as high as 5.00% APY.
Another option is a high-yield checking account. The very best pay up to 6%, but high-yield checking rates usually come with strings attached—such as a required number of debit card transactions or monthly direct deposits.
The bottom line: You need a safety cushion you can tap instantly for emergencies or unplanned expenses. With a cash reserve in place, you’ll have easy access to funds without jeopardizing the fixed return you’ve locked in with your CD.
Daily Rankings of the Best CDs and Savings Accounts
We update these rankings every business day to give you the best deposit rates available:
Important
Note that the “top rates” quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher.
How We Find the Best Savings and CD Rates
Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account’s minimum initial deposit must not exceed $25,000. It also cannot specify a maximum deposit amount that’s below $5,000.
Banks must be available in at least 40 states to qualify as nationally available. And while some credit unions require you to donate to a specific charity or association to become a member if you don’t meet other eligibility criteria (e.g., you don’t live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.
