3 Reasons Not to Be Disappointed With Falling CD Rates

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Falling CD rates aren’t totally bad news. Read on for the upside of lower CD rates. [[{“value”:”

Earlier this year, finding a 5% certificate of deposit (CD) was pretty easy. But now, 5% CDs are harder to come by. And as the Federal Reserve continues with its anticipated interest rate cuts, we’re likely to see CDs start to pay less and less.

At first, that might seem like a bad thing. But here’s why you shouldn’t be too disappointed by the fact that CD rates are on the downswing.

1. CD rates are still pretty darn good

It’s true that 5% CDs have gotten harder to come by. But that doesn’t mean you can’t get a decent CD rate today.

Quite the contrary — if you shop around, you might lock in a 12-month CD at 4.5% instead of 5%. For a $5,000 deposit, you’re talking about earning $225 in interest instead of $250. And yes, it is a bit of a bummer to lose out on $25. But it’s also not so terrible.

Plus, if you research the best CD issuers, you may be able to find one that pays better than 4.5%. Click here for a list of the best CD rates available now.

2. Lower CD rates mean lower borrowing rates

CD rates are falling because the Federal Reserve is cutting its benchmark interest rate, and banks are following suit. But that means that in the coming months, you’re likely to be looking at a lower interest rate on your next loan, whether it’s a mortgage, an auto loan, or a personal loan.

Of course, if you want to lock in an affordable loan rate, you shouldn’t just wait for the Fed to keep cutting rates. You should also work on boosting your credit score, which you can do by paying bills on time and reducing outstanding balances on your credit cards.

But all told, you might benefit financially from the Fed’s rate cuts by paying less interest the next time you borrow money. And that interest savings could more than make up for the slightly lower CD rate you end up with.

3. A CD may not be the best place for your money anyway

The fact that CD rates are falling may not affect you if a CD isn’t the best place to park your cash anyway. For example, if you have money you have earmarked for your emergency fund, then you should absolutely not put it into a CD.

There can be steep penalties for withdrawing money early from a CD. For this reason, your emergency fund needs to sit in a savings account, where you can remove money at any time without having to worry about penalties.

The good news is that savings accounts are still paying pretty nicely today, even as rates are starting to fall. Click here for a list of the best savings accounts and rates available now.

If you have cash you don’t expect to need or use for many years, consider investing your money rather than committing it to a CD. Over the past 50 years, the S&P 500 has averaged an annual return of 10%. That beats CDs by a long shot.

In fact, if you put $5,000 into a stock portfolio today and leave it alone for 20 years, it could end up being worth around $33,000 if your portfolio pays you 10% a year during that time. Even if you’re somehow able to get 4.5% out of CDs during that same time frame (which is highly unlikely), that only gives you about $12,000.

It’s natural to be bummed initially about falling CD rates. But if you dig deeper, you may realize there’s actually no reason to be all that disappointed.

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