The economy is changing, and it will likely impact savers. The July jobs report was not stellar, with only 73,000 jobs added. Moreover, the revisions to the May and June jobs reports resulted in a reduction of 258,000 jobs, showing a cooling job market. When this happens, one way the Federal Reserve can stimulate the economy and job growth is by lowering rates.
CME FedWatch projects a 92% chance of a quarter-point rate cut when the Fed meets in September. If this happens as projected, it will impact savings rates. When the Fed cuts rates, it also drops rates on all savings vehicles, from CDs to high-yield savings accounts.
With this in mind, if you're a saver who hates surprises, I have a tip for you. Doing this helps you earn guaranteed returns and lock in a high rate now before the Fed makes its next move.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Lock in a high rate before rate cuts hit
CDs don't offer the ease of accessing your cash, like money market accounts or high-yield savings accounts. However, they do come with a feature that proves handy in situations like this: A fixed APY.
With a fixed APY, you won't have to worry about what the Fed does. Once you lock in your rate, it's the return you'll earn even if rate cuts happen.
Now is an excellent time to sign up for one, with rates above 4% for many accounts. Using this tool from Bankrate, you can shop and compare options fast:
Which CD term works best for me?
Your choice comes down to your savings goals and risk tolerance. If you have cash on hand and want to earn a high rate for years, our best 5-year CD rates are a wise option to consider.
For example, if you deposit $50,000 into a 5-year CD from Lafayette Federal Credit Union at 4.28%, you'll earn $11,655.97 in interest risk-free over the term.
If you’d rather see how inflation plays out before committing long-term, you might be more inclined to a short-term CD. These are beneficial if you want to see how prices play out for the next year, as you can move your money if inflation increases to the point where 4%+ returns are not netting you enough of a return.
This is where our best one-year CD rates come into play. Locking one in now ensures you receive a high rate that won't change if the Fed cuts rates.
Using the same deposit above of $50,000, if you sign up for a one-year CD with Colorado Federal Savings Bank at 4.30%, you'll earn $2,150 in interest that first year.
And, you have the option in a year to pivot to other investments that earn you more, especially if prices keep rising.
Things to keep in mind with this CD approach
CDs are a lock your money away and forget about it type of savings vehicle. If you need to access money before your term expires, you pay an early termination fee. Banks charge penalties based on your CD maturity. If you have a one-year CD, penalties range from three to six months of interest.
Meanwhile, for five-year CDs, penalties can creep as high as one year of interest earned. Therefore, make sure you can live without this money comfortably before you sign up.
Also, some banks will renew your CD once it reaches its maturity. Set a reminder on your phone a week before its maturity date, as it gives you more time to shop around to see where rates are and whether you want to try another savings vehicle.
Ultimately, CDs are a smart savings option if you want to lock in a high rate now and not worry about upcoming rate cuts. Not only will you receive a guaranteed return, but you will have peace of mind knowing your CD is outpacing inflation.
Related content
-
Seven Gorgeous Train Trips to Enjoy Fall FoliageSee fall's best colors from the rails. We've rounded up a range of short and longer train trips across the country that are ideal for older travelers.
-
I'm 63 with an aging house that needs repairs, but I might eventually move to a retirement community. Is it worth making those fixes?We ask financial experts for advice.
-
The Five Best Cruise Lines for RetireesRetirement is an ideal time for cruising. Check out the five best cruise lines for comfort, ease, and unforgettable experiences.
-
My First $1 Million: Oil and Gas Retiree, 67, Round Rock, TexasEver wonder how someone who's made a million dollars or more did it? Kiplinger's My First $1 Million series uncovers the answers.
-
Why Jerry Quits Ben & Jerry's: 5 Signs It May Be Time for You to Do the SameAfter 47 years with Ben & Jerry's, co-founder Jerry Greenfield has stepped down. His decision highlights an important truth: sometimes it's not about waiting for retirement — it's about recognizing the signs that it's time to quit.
-
Amex Platinum Just Got More Expensive: $895 Fee and $3,500 in Perks ExplainedAmerican Express raises the Platinum Card’s annual fee to $895 and expands its perks. We break down the changes so you don’t have to.
-
Falling Interest Rates: What They Mean for Homeowners, Savers and InvestorsAs interest rates fall, homeowners may celebrate while savers feel the pinch. Here’s what the change could mean for your money.
-
Refinance Applications Surge as Mortgage Rates TumbleThe window to refinance is reopening as mortgage rates hit their lowest level in nearly a year. Here’s what the market shift means for homeowners.
-
Average Spending by Age for Those 55 and Up: Are You Thrifty?Everybody has their own number for how much they’ll spend in retirement. See if your's is in line with the averages.
-
I’m Not Worried About Saving for Retirement; I’ll Just Work Forever. What Can Go Wrong?Here's why that approach to saving for retirement doesn't always work out.
