Here's the Secret I Learned About Opening a CD at Just the Right Time
APYs are just one thing to consider when deciding if you should open a CD now.I used to be clueless about certificates of deposit before I became a personal finance editor. Then I learned how interest rates work, and I realized that timing is everything. The Fed held rates steady at its last three meetings, and it's likely to keep interest rates the same during its upcoming meeting next week. Experts say the central bank might start cutting rates later this year, possibly in fall or winter.
Now, instead of leaving money on the table, I let interest rates guide my savings strategy. Here's when you should lock in a CD and when you're better off waiting.
Read more: Best CD Rates for June 2025: Lock in an APY up to 4.50% While You Still Can
Open a CD when rates are high
When you open a CD, your annual percentage yield is locked in for the entire term, whether it's five months or five years. Opening a CD when rates are competitive can help you maximize your earnings. If you wait too long and rates drop, you won't be able to secure a high APY.
For example, in 2023, APYs for the top CDs we track at CNET soared to 5.65%. Now, the top rate is 4.50%. That's still more than three times the national average for some terms, but it means you won't earn as much as you would if you'd opened a CD when rates were at their highest. In the last decade, CDs have sometimes offered as little as 0.5% APY or lower.
So, how do you know if rates are headed up or down? Keep an eye on the current interest rate news.
The Federal Reserve, the country's central bank, adjusts interest rates in an effort to stabilize prices, boost economic growth or maximize employment. If the Fed's monetary policy meeting is around the corner (the next one is June 17-18), check to see if the Fed plans to increase, reduce or maintain its benchmark interest rate. Other banks and financial institutions typically set savings account and CD rates based on the Fed's actions.
"When the Fed hikes rates, banks offer more interest to get people to save," said Taylor Kovar, certified financial planner and CEO of 11 Financial.
The Fed held rates steady at its last three meetings, and it's likely to keep interest rates the same during its meeting next week. Experts say the central bank might start cutting rates later this year.
"When the Fed holds or starts cutting, banks don't have to work as hard to attract deposits, so they pull those rates back. Even before the Fed makes a move, banks start adjusting based on what they think is coming," Kovar said.
We're already seeing some banks quietly lower their APYs on deposit accounts. If you're looking for a low-risk investment tool now, locking in a CD at today's top rates could help you maximize your earning potential.
Open a CD when you have a specific savings goal in mind
CDs come in a variety of terms, ranging from a few months to several years, so you can choose a timeframe that aligns with your savings goal.
If you're putting aside money for an expense with a specific date, like a wedding or vacation, a CD can be a great tool. Your funds will grow reliably until you need them, and early withdrawal penalties can discourage you from dipping into your cash prematurely.
"If you invest in a CD, plan to not touch the money until the end of the term," said Noah Damsky, CFA, Principal of Marina Wealth Advisors. "Withdrawing funds early from a CD could result in penalties or foregoing earned interest."
Open a CD when you want to protect your retirement funds
Low-risk assets like CDs don't have the high earning potential that some stocks do, but they're also not as volatile. You won't see your savings plunge, for example. That's why experts recommend a mix of assets in your investment portfolio.
If retirement is decades away, keeping a larger percentage of your money in high-risk, high-reward assets like stocks can help you grow your nest egg faster. You'll just have to ride out temporary market dips.
If you're approaching retirement, however, it's time to focus less on growth and more on protecting the funds you've accumulated. Shifting a larger portion of your money into a CD can give you more stability once you stop working.
If you're unsure, build a CD ladder
If you know you want to open a CD now, but you also want the flexibility to take advantage of higher APYs if they emerge, a CD ladder can help. With a CD ladder, you spread your money across multiple CDs with different maturity dates. For example, if you have $10,000 to invest, you could divide it up this way:
$2,000 in a one-year CD
$2,000 in a two-year CD
$2,000 in a three-year CD
$2,000 in a four-year CD
$2,000 in a five-year CD
When one CD's term is up, you can withdraw the money and reevaluate how you want to use or invest it.
Maybe you'll decide to roll those funds over into a new CD at an equal or better APY. Or you may open a different account somewhere else. A CD ladder allows you to keep some money available at regular intervals and jump on higher rates if they become available.
Pro tip: CD rates can vary significantly from term to term and bank to bank. Always compare multiple banks and accounts to make sure you're getting the best APY for your savings timeline.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Bloomberg
20 minutes ago
- Bloomberg
Bloomberg Surveillance: Inflation and Tariffs
Watch Tom and Paul LIVE every day on YouTube: Bloomberg Surveillance hosted by Tom Keene & Paul Sweeney June 12th, 2025 Featuring: 1) Frances Donald, Chief Economist at RBC, joins for a discussion on CPI and the labor market and whether the Fed will be late to cut rates. The Federal Reserve is rewriting its strategy document to balance the lessons learned from low inflation before the pandemic and the painful high inflation that followed, aiming to maximize economic benefits for working Americans while controlling inflation. 2) Rich Clarida, Global Economic Advisor at PIMCO and former Fed Vice Chair, joins for an extended conversation on the Fed, rates, and the US economy. Today's 30-year Treasury auction is providing a fresh gauge of investor appetite for long-dated debt amid concerns over mounting deficits and their impact on demand. 3) Ian Lyngen, Head of US Rates at BMO Capital Markets, talks about the outlook for the 10-year-yield and brings us into PPI. President Trump's remarks on imposing unilateral tariffs on dozens of US trading partners and heightened tensions in the Middle East contributed to the risk-off tone across markets today. 4) Anton Posner, CEO at Mercury Resources, discusses how tariffs are affecting shipping and maritime industries and whether it will show up in the economic and consumer data and unilateral tariffs go into place. President Trump has threatened to impose higher duties on dozens of economies, but has only reached a trade framework with the UK and a tariff truce with China, which was recently threatened.
Bloomberg
35 minutes ago
- Bloomberg
Pimco Sees 'Fragmentation Era' in Annual Secular Outlook
00:00 A new secular outlook. Always a fantastic team effort from you and the team every single every single June, I believe. Yeah, the era of fragmentation. Let's just start that before we get into the debt dynamics. What is that and what does it mean for the path forward? Very straightforward. The world's fragmenting into regional security alliances, trading blocs, currency zones. The process has been underway for a while, but it's accelerated under Trump 2.0. We point out it has important implications for the economy and markets. We see business cycles being amplified, markets being more volatile. But importantly, there are opportunities for investors in the fragmentation era to identify what's driving returns and repricing risk. Well, let's identify what the economic characteristics are of the era of fragmentation and what it means for the so-called long bond. Does it mean a less dependable bond bed for a 30 year maturity? Well, we're not sure. We think what it does mean is there's a very large stock of debt in the US and around the world as we come into the era of fragmentation. And so we do see already in market pricing a higher term premia. Our judgment right now is that the very long into the curve for most investors, you're not getting paid enough to take on three times the interest rate risk, which is our preference for the belly of the curve. So that's the most immediate point I guess I would make. What do you what's your reaction when you hear Jeffrey Gundlach say a reckoning is coming to the US in the US debt market? Our baseline view is that a reckoning is inevitable, but not our baseline for the next five years. We think the action forcing event in Washington to get our fiscal house in order will probably be in the next decade when the Medicare, Medicare and Social Security trust funds are exhausted. We could be wrong at some level. I hope we're wrong because an earlier reckoning means that we get our fiscal house in order. But our baseline is that that's that's something in the next decade. When you see these concerns of the US debt market and then you're also have this view that there's this fragmentation going on in the world. What does this mean for us? Exceptionalism? Is it over? Is it waning or potentially could it re-emerge in Trump to point out? We think it could re-emerge for the following reason. As we come into the era of fragmentation, there's a lot to like about the US. Strong productivity growth and innovative economy. More or less efficient capital markets. And. And those attributes have not gone away. There's a lot of uncertainty now, a lot of it generated about US trade policy and security policy. But over time, Anne-Marie, that will get sorted out. And as that goes into the rear view mirror, we think there's a decent shot that the exceptionalism mean returns. Can we just finish on the Federal Reserve? Oh, the kind of new considerations in monetary policy officials need to have in the moment that even a team, a framework, what's changed for them? I think that it will make their job more difficult in the sense that the Fed benefited enormously and all central banks did from globalization. And Jay Powell and I used to talk about that at the time is that the era of globalization lowered the cost of goods, increased efficiency, it put downward pressure on inflation. Indeed, the price of goods fell on average in the nineties up until the pandemic. And so as globalization goes into reverse and in the era of fragmentation, that process will be accelerating. It's going to make all central banks job at the margin harder because you will not have that disinflationary force from globalization. Do you think it makes it more difficult to respond to unfair shocks and respond quickly enough? I think at the margin, probably for all central banks, they have a little bit less room to respond preemptively to news of a slowing economy simply because they don't have the tailwind of inflation being a bit below target for ten or 15 or 20 years. And they want to keep inflation expectations anchored. So again, I think these effects are more at the margin, but I think it's less likely that you get preemptive moves to going into downturns. I remember a phrase of yours, an ounce of protection is worth a pound of cure. It doesn't feel like they have that luxury this time around. They have less of a luxury. And, you know, John, there is some path dependence here. I mean, we would be having a different conversation if inflation for the last four years had not been well above 2%. And I won't even use the T word here. And so I think there is some path dependence here for all central banks Christine Lagarde, Andrew Bailey and others, central banks. At the end of the day, one inflation expectations to be anchored and they want to be credible. So I think that is relevant here.
Yahoo
36 minutes ago
- Yahoo
Dollar Index Falls Below 98 for First Time in Three Years, Gives Room for Crypto Run
The dollar index (DXY), a measure of the U.S. dollar's strength against a basket of major global currencies, dropped below 98 for the first time since early 2022. This move signals a notable shift in global currency markets and could create a favorable environment for risk assets, especially cryptocurrencies, like bitcoin BTC. In recent years, a DXY reading above 100 has typically reflected dollar dominance and a risk-off sentiment, often weighing on equities and digital assets. Conversely, a weakening dollar eases financial conditions, boosts global liquidity, and tends to benefit speculative assets. Several factors are contributing to the current decline. US headline inflation came in at 2.4 percent year-over-year, slightly below the consensus estimate of 2.5 percent, strengthening market expectations for a dovish monetary policy shift. According to the CME FedWatch Tool, markets are now pricing in a 99.8 percent probability of a rate cut at the June Federal Reserve meeting, with the target range expected to drop to 4.25 to 4.50 percent. Growing narratives around de-dollarization, combined with policy uncertainty from the Trump administration's trade and tariff policies, have eroded confidence in the dollar, accelerating its decline.
