CD Rates Above 5.00% May Disappear. Is It Time to Buy?

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The number of CDs with rates above 5.00% is declining. Find out if now is a good time to buy CDs or if you should put off your purchase for a while. [[{“value”:”

In November of 2023, you had more than 3,900 certificates of deposit (CDs) to pick from if you wanted one offering a rate above 5.00%. By March of 2024, you had fewer than 3,000 choices.

CDs with super high yields are slowly disappearing. If you want to get your hands on one, should you act right now and buy? Or do you have time to wait? Let’s take a closer look.

The case for buying CDs right now

With the data showing a slow decline in CDs with super high yields topping 5.00%, there’s a good argument to be made for investing in CDs right now. For one thing, you don’t have to make a long commitment to get a CD paying upward of 5.00% at the moment. Traditionally, CDs with longer terms offered the most competitive yields. In the current market, short-term CDs have the best rates.

The Ascent has a list of multiple 6-month CDs offering rates above 5.00%. Six months is such a short time commitment that you aren’t taking on much interest rate risk. If rates do happen to go up in the coming months, it won’t be long before you can take advantage of them.

Plus, the chances of CD rates going up soon aren’t very high. The Federal Reserve has signaled that it wants to reduce, not raise, interest rates as soon as inflation gets under control. If the Fed acts to cut rates, or even if it simply keeps them stable, there’s no reason to believe banks are suddenly going to start offering CDs with higher yields any time soon. After all, CD rates climbed to their current heights in response to the Fed raising rates almost a dozen times between 2022 and July 2023.

A series of additional rate increases like that probably won’t happen again since inflation — while still higher than the Fed would like — is at a much more manageable level than it was during that time period. The inflation rate averaged 4.10% in 2023 and 8.00% in 2022. In 2024, it’s trending at around the 3.00% to 3.50% range.

With little chance of a big rate increase and the ability to buy short-term CDs and still get 5.00% yields, buying now just makes good sense.

The case for waiting

However, there’s still a case for waiting to open CDs.

The Federal Reserve is targeting a 2.00% inflation rate, and as mentioned above, inflation is in the 3.00% to 3.50% range. The Fed is going to want to see clear signs that price increases are slowing down a lot before it considers cutting interest rates, and most experts are no longer predicting the multiple rate cuts that were once expected this year.

This means you may have more time to buy CDs if rates stay stable for a while. Or you may decide your money is fine in your savings account since many high-yield accounts are also paying upward of 5.00% now. That won’t probably won’t change any time soon unless the Fed surprises everyone.

While those arguments have merit, on balance, it probably makes sense for anyone with spare cash they can invest for less than five years to consider putting some of it into a CD. There’s little downside to doing so, and for those who don’t act, there’s a big risk that 5.00% yields will disappear before they get the chance to take advantage of them.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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