Why You Should Open a CD Even as the Fed Continues to Cut Rates

After an aggressive rate hike campaign that saw Americans see the federal funds rate rise from near zero to more than 5%, the Federal Reserve is preparing to announce its second rate cut this year this week. After Down 50 basis points in SeptemberThe federal funds rate fell to a range of 4.75% to 5%. And after the November Fed meeting ends, the rate is expected to fall to a range of 4.50% to 4.75%. While the 25 basis point cut will have minimal impact on borrowers, it could cause many savers to reconsider their options if they haven’t already.

In such a situation, many investors may think about the benefits of opening certificate of deposit (CD) accountspecifically. Prices These accounts have risen in recent years along with the federal funds rate, giving savers safe and an effective way to make a significant return on your money. But now, with a second rate cut set to be released in three months (and likely another when the Fed meets again in December), some may be wondering whether it’s still worth opening the CD. Below, we’ll look at three reasons why you should consider opening a bank now, even as the Fed continues to cut rates.

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Why You Should Open a CD Even as the Fed Continues to Cut Rates

Not sure whether to open a CD in the face of a looming rate cut? Here are three reasons why it might be worth doing now:

Rates are still increased (although slightly lower than before)

Of course, rates are falling. But they haven’t fallen so sharply as to render CD accounts useless. Remember that CD interest rates follow the Fed’s actions, but do not directly reflect them. So you can still find a CD with an interest rate close to 5% right now. And the additional 25 basis points of cuts will have a small but gradual impact on the savings rate climate, meaning it will take time for CD rates to drop significantly. Now is not the time yet.

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Your money may need an extra layer of protection

Due to the announcement of interest rate cuts, unemployment the data is uneven, inflation The fall and geopolitical tensions, as well as concerns over the US presidential election are prominent, and there are many factors contributing to economic instability right now. Thus, in such circumstances, it is useful to add an extra layer of protection for your money.

And a CD with it fixed interest rateI can offer exactly this. Not only will you not have to worry about unfavorable market conditions affecting your CD account, you will also be able to accurately budget by knowing exactly how much interest you will earn on invoice due date.

Your window of opportunity is (slowly) closing

This may seem obvious, but it’s worth repeating. The window of opportunity to earn today’s increased rate is closing. It’s important to remember that just a few years ago CD rates were below 1%. And while no one is predicting rates will fall that low anytime soon, as noted above, they are on a downward path.

So, there’s no point in waiting for rates to fall further, especially if you have an amount of money you can comfortably park in a CD right now. Just remember to deposit only the amount you can keep in the account for as long as maturity or you will have to pay expensive penalty for early withdrawal to restore access.

Bottom line

Rates on CD accounts are falling, but not so sharply or so quickly that savers cannot now make a significant return on their money. But with another rate cut likely in a matter of days, and more cuts possible in December and 2025, savers should act now before this window of opportunity closes entirely. After all, it took years for these CD rates to rise to the high levels they are now. So it makes sense to open it while you still can.