Ask Yourself These Essential Questions Before Opening a CD This Year

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CD rates are up. But read on for some essential questions to run through before opening one. 

One benefit of putting money into a CD versus a regular savings account is that you might get an opportunity to earn more interest on your parked cash. CD rates are often higher than the rate you’ll get in a savings account. Also, when you open a CD, your interest rate is guaranteed throughout its term, whereas with a savings account, you might start with a higher rate only to see it fall weeks or months later.

Now, it just so happens that CDs are paying pretty generously these days. But before you rush to open one, make sure to address these important questions.

1. Am I sure I don’t need the money for something else?

When you put money into a CD, you’re making a commitment. You can technically cash out a CD at any time, but if you do so before the end of its term, you’ll face a penalty (the exact amount of which will depend on the length of your CD and your bank). So it’s best to only tie up money in a CD that you’re certain you won’t need for its duration.

To that end, think about your upcoming financial needs. The holidays will be here soon. Are you sure you won’t need the cash you’re thinking of putting into a CD to buy gifts? This is just one example, but the point is to make certain you can really afford to part with your cash for six months, 12 months, or however long your CD term is.

2. Am I planning any large purchases for 2024?

You may not have many larger purchases planned in the near term. But what are your plans for the new year?

If you’re thinking of opening a 6- or 12-month CD at some point this year, it means that money will be restricted for a good part of 2024, too. So if you’re thinking of renovating your home or you have reason to believe that you might need a new car, you may want to hold off.

3. Do I think rates will be more favorable down the line?

Right now, CD rates are high thanks to a string of interest rate hikes implemented by the Federal Reserve. On Nov. 1, the Federal Reserve announced it would pause its interest rate hikes — something it did back in September as well.

But the Fed still has one meeting left this year scheduled for mid-December. And if the central bank opts to raise interest rates at that point, it could result in higher interest rates for CDs as well.

Of course, that’s a big “if.” Some economists are confident that the Fed is done raising interest rates. But you may want to wait until December to open a CD in case another rate hike happens.

Putting money into a CD is a good way to earn extra interest on cash you’d like to leave in the bank. Just make sure it’s the right time to open a CD before diving in.

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