I’m Not Chasing the Highest CD Rates This Month. Here’s Why

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

I want to open a new CD in March, but I know off the bat that I don’t care about getting the highest rate. Find out why. [[{“value”:”

The Federal Reserve spent much of 2022 and 2023 raising interest rates in an attempt to cool inflation. And thankfully, it worked. Inflation is less of a nuisance now than it was a couple of years back, which means consumers today aren’t looking at quite the same costs at the supermarket or gas pump.

However, the Fed’s interest rate hikes unfortunately drove the cost of borrowing way up. So for the past year or so, many consumers with debt have been burdened with higher costs. But the Fed’s rate hikes have benefitted people with money in the bank. These days, savings accounts are paying generously.

Certificates of deposit (CDs) are also paying out well. Since the Fed is expected to cut interest rates at some point in 2024, now’s a good time to lock in a CD. Once rate cuts come down the pike, CD rates may not be as attractive.

I personally want to open a CD in March. But I won’t be chasing the highest rate possible for one big reason.

I’m thinking long term

Because banks are well aware that interest rate cuts are likely this year, they’re being more conservative with their long-term CD rates. As such, you’re likely to get a higher interest rate on, say, a 6- or 12-month CD in March than on a 48- or 60-month CD.

Capital One, for example, has a 4.35% APY on a 6-month CD and a 5.00% APY for a 12-month CD. For a 48-month CD, you’re looking at 4.05%. For a 60-month CD, the APY is 4.00%. So if I were to open a 60-month CD this month at Capital One, I wouldn’t end up with the highest APY available there. But that’s also okay.

See, I specifically want to open a longer-term CD because I’m saving for a milestone — college — that isn’t so far away. I also have money in the stock market for college purposes, but because those tuition bills aren’t so far off, I want to keep some of my college savings in a safer asset, like cash, for about the next five years or so.

If I open a 12-month CD this month, I might score a higher APY. But then what happens in a year from now, when rates are likely to be lower across the board? At that point, I may not be able to renew that CD to another 12-month term for anywhere close to 5%, or even 4%. That’s why I specifically want to lock in a longer-term CD in the coming weeks. And I don’t care if I don’t end up with the best interest rate because of that.

It’s a matter of your own needs and goals

If you’re sitting on some extra cash, you may be inclined to put it into a CD while rates are still pretty attractive. But before you make a point to try to lock in the highest rate possible, think about your personal needs and goals. Like me, you may find that it makes sense to forgo a bit more interest in the near term to earn more interest on your money in the long term.

These savings accounts are FDIC insured and could earn you 11x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
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.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

“}]] Read More