Should You Get a Long-Term or Short-Term CD Before the Next Fed Meeting?
Is a long-term or short-term CD better to open before the Fed meeting this week? Here's what you need to know.
Rachael Green
The upcoming December Fed meeting has many feeling certain that the Federal Reserve will continue cutting interest rates. With savings rates hanging in the balance, many are watching closely to see what the Fed decides.
According to the CME Group's Fed Watch tool, economists are overwhelmingly confident that the Fed will drop rates to the 3.50% to 3.75% range this week.
Looking ahead to December, analysts anticipate the central bank to continue lowering rates, with some forecasting rates to drop below 3.50% next year.
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If you’ve waited to open a CD account until now, or if your current CD account is nearing maturity, you’re likely considering locking in rates ahead of the next meeting.
Which CD should you open before the conclusion of the Fed meeting — a short-term or long-term account?
Use the tool below, powered by Bankrate, to compare CD rates today, or keep reading for our recommendations on the best CDs to consider ahead of the December Fed meeting.
Should you get a long- or short-term CD before the Fed meeting this week?
When comparing current CD rates, you’ll notice that the best rates offered are mainly on short-term CDs. However, the difference is minimal.
If you’re comfortable with a long-term time commitment, a five-year CD is a solid option, with some of the top earning accounts offering more than 4% APY. While many one-year CDs have rates at about the same level, locking in those rates for longer will pay off in the long run.
Putting $5,000 into a one-year CD with a rate of 4.15% will earn you over $210 in interest, if compounded daily. But if you want to open another CD once that one matures, you might have to settle for a much lower rate, depending on what happens in the next year.
On the other hand, if you lock in that 4.15% for a five-year CD, you’d maintain that savings rate for the whole five years, earning over $1,150 in total, if compounded daily.
Locking in high yields for as long as possible can be a smart savings strategy, but there’s one main factor to consider before you fund the account. When putting money in a CD account, you’ll have to be prepared to “set it and forget it.”
That means not accessing the cash until the CD matures, which can prove challenging if your cash is tied up for several years. If you do withdraw funds early, you’ll be charged a fee that can offset any interest earned.
If you can’t commit to a long-term CD, it’s still worth opening a short-term one. While you run the risk of rates dropping after it matures, it will still help you earn some extra cash without tying up your money for an extended time.
It's also worth opening a high-yield savings account, although these accounts won't allow you to lock in rates. For any savings (such as an emergency fund) that you need to be able to access at any time, a high-yield savings account allows you to earn a little interest without tying up your cash.
Use the tool below to explore and compare some of today's best offers, powered by Bankrate:
Demand for long-term CDs is on the rise
In the last several years, there’s been a surge in the popularity of CD accounts driven by rapidly rising rates in response to the Fed's interest rate-hiking campaign.
These increases followed a series of rate increases in 2022 and 2023, which pushed the federal funds rate to its highest level since 2001.
With so much uncertainty, consumers are seeking ways to keep their savings strong for as long as they can. For many, this means turning to longer-term CDs.
The number of savers shopping for one-year CDs on online marketplace CD Valet increased 150% in the first quarter of this year, the company reported, even when the yields offered on shorter six- to nine-month CDs were higher.
"Savers may be feeling more recession risk and choosing to trade maturity for rate, while they still can," says John Blizzard, Founder of CD Valet.
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