You'll Kick Yourself in the Fall if You Don't Make This Savings Move Now

We can't shake inflation. After a lull over the spring, prices on some items are the highest they've been, including produce and beef prices. Gas prices rising by over 4% are the primary driver of the headline CPI increasing by 0.3% last month.

Savers are also feeling the squeeze with lower returns on the horizon. The Federal Reserve cut rates at its September meeting and will likely do so again when it meets this week.

With these things in mind, does a long-term CD make sense amid rising inflation and a rate cut?

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Inflation projections for 2025

Inflation will overachieve its projections for 2025. Fed chair Jerome Powell said, “Everyone that I know is forecasting a meaningful increase in inflation in the coming months from tariffs because someone has to pay for them."

How much do they expect core inflation to rise in 2025? At the June Fed meeting, the Federal Open Market Committee (FOMC) reported that it expects inflation to increase to 3.1% in 2025, up from the March projections of 2.8%.

If you're wondering what the Fed will do at its next meeting, October 28-29, it's likely to issue the second rate cut of the year.

Why? The jobs reports have been less than stellar. There was an average of only 27,000 jobs added each of the past four months. With the government shutdown, payroll data won't be available.

And one way to stimulate job growth is through rate cuts. Doing so lowers borrowing costs for companies.

At the same time, it also lowers the returns you'll earn on your savings rates. This means now is the time to lock in higher returns while you can.

Savings strategies to keep ahead of inflation

There are several ways of looking at maximizing your savings when inflation rises. The first is to lock in a long-term CD. CDs are market-resistant in that they come with fixed interest rates.

It means if you choose a five-year CD and the Fed decides to cut interest rates next week, the rate you have won't change until after your CD matures.

And some five-year CD rates are over 4%. Use the Bankrate tool below to find and compare CD options fast:

There's another benefit to a long-term CD. Mark Hamrick, a senior economic analyst with Bankrate, notes, "If opting for a multi-year rate is a sound option for you, one can avoid the situation where maturing short-term assets will need to be reinvested, possibly at lower rates down the road."

And he's right. A five-year CD allows you to earn a guaranteed rate of return with no work on your part. Moreover, if the Fed cuts rates again, as many economists project, now's the time to lock one in while rates are outpacing inflation.

The one thing to note about long-term CDs is that you can't touch that money. If you withdraw it before the maturity date, you're likely paying at least a year of earned interest, lowering your returns.

Short-term alternatives that offer flexibility

Long-term CDs should keep you ahead of the game, at least for the rest of 2025. However, they're also best for conservative savers or those nearing retirement, who want a risk-free way to grow their money without access to it.

That said, what if inflation exceeds expectations and you want the flexibility to pivot to more traditional investment strategies, such as mutual funds or a diversified stock portfolio, where the risk and returns are higher?

If this applies to you, then consider a no-penalty CD. No-penalty CD rates average over 4% returns and come with a shorter maturity window, between six to 14 months.

The benefit of these is that you can still lock in a rate while they're higher, but you also have the flexibility to pivot to other investments fast. That way, if the Fed cuts rates and prices continue to rise, you can find other solutions that maximize returns since this scenario will squeeze savers anyway.

The thing to keep in mind with no-penalty CDs is that once you fund them, you can't touch the money for at least a week, although some banks extend that to the first 30 days. Some also restrict withdrawals to once per month, while other banks allow you to take it all after the initial holding period.

However, if you're looking for a quick way to pivot, this could be a smart option as you won't feel the impact of rate cuts immediately. Regardless of what strategy you use, CDs can shelter your money from the rising costs of everyday items.

And with the Fed likely cutting rates this week, now is the best time to take advantage of the higher rates while they're here.

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