I like long-term CDs. They earn a guaranteed rate of return, the APY won’t change, and they can help you meet long-term savings goals. In a world full of questionable financial options, they’re among the most dependable things you can get.
Yet, timing when to open one is imperative. Locking in a rate now, with the current 3.50% inflation rate as a permanent ceiling, will likely prove short-lived, which means inflation might erode some of your future purchasing power. With the ongoing war in Iran raising gas prices again, expect inflation to follow suit.
On top of this, the Federal Reserve is currently holding steady. However, if the bond market tightening doesn’t bring down inflation through higher borrowing costs, they may be forced to hike rates — meaning today’s locked-in rates could quickly look like a missed opportunity. With that in mind, here is the short-term strategy I’m currently using, as someone who checks and analyzes savings rates for a living, to stay flexible as the market settles.
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Short-term CDs provide the dependability and flexibility you want now
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I recommend a short-term CD in the interim. With one, you’ll have all the benefits you come to love about CDs, with quick access to your cash.
They work best if you have an emergency fund already established and don’t need to touch your money during the term. If you have to break it open for any reason, you’ll lose some of your earnings to early termination fees. Thankfully, with terms that accommodate all savings goals, you can find the best fit for your goals and cash flow.
Use this Bankrate tool to shop for and compare the best CD rates quickly:
Having quick access to your cash is important because if inflation continues to creep back up, you might want to revisit where you invest your cash when the CD matures. And if the Federal Reserve decides to hike rates later this year, it places you in an excellent position to capitalize on higher returns.
Does waiting really make that big of an impact?
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Timing matters when choosing the right savings account. And knowing when to lock in a long-term CD can be the difference between earning hundreds to thousands of dollars more.
To demonstrate, say you locked in a $50,000 five-year CD at 4.00%. You’ll earn $10,832.65. However, if you wait a few months and the Fed hikes rates, you could have access to higher returns. A five-year CD at 4.25% APY will earn you $11,567.33, a difference of almost $735, just for waiting a few months.
That’s pretty significant, and it’s one of the reasons why I would wait on a longer-term CD. On the other side of the coin, you might be thinking, well, would waiting hurt me? After all, what happens if CD rates drop in the interim?
Rest assured, I don’t see that happening any time soon. I review CD rates biweekly and have found that some banks have raised CD rates. Here are some of the ones I found recently that rose:
And with inflation so high, cutting the federal funds rate would not be a sound strategy to curb rising costs. While waiting carries the risk of returns remaining flat, the potential upside of a higher rate makes this strategy a smart move in this environment.
Ultimately, short-term CDs are the better play right now. They provide a safe place to park your cash while the economic landscape settles, without locking you into a long-term commitment. By prioritizing terms that keep your money accessible, you’re not just earning a competitive term — you’re maintaining the flexibility to pivot as soon as better opportunities arise.