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It's hard to argue against the usefulness of a certificate of deposit (CD) Right Now. In today's high interest rate environment, these accounts are a compelling way to do just that get a significant return on your savings. And, that return can help you increase the value of your savings even against your current one persistent inflation.
But when you buy a CD account, you will have to make an important decision. You will have to decide which CD term will you open. There are short and long term options (from a few months to several years) to choose from. And, you should be fine locking in your money for the entire term or face the potential penalties if you withdraw your money early.
So which CD term is it the best Your unique needs and goals should play a role in this decision. But, there are some CD terms that you would be wise to keep in mind right now.
Compare the top CD accounts now.
3 CD Account Terms to Consider Now
Each CD term has its own advantages and disadvantages. But, there are some terms you may want to consider based on the current economic and interest rate environment. This includes:
6 month CD
“CDs are a great way to earn fixed, guaranteed interest,” explains Chris Berkel, investment advisor and president of financial planning firm AXIS Financial. He says six-month CDs are a solid choice for those who “know they'll need cash shortly, but not immediately,” because they give you “the ability to lock in current interest rates and protect your principal.”
And, today's high interest rate environment makes six-month CDs even more attractive.
“Due to the current interest rate environment, yields are still largely inverted, meaning bonds and short-term CDs, such as a 6-month CD, pay an interest rate higher than long-term CDs or bonds, such as those maturing in 2, 4, 10 and 20 years,” says Berkel.
And, taking into account the election year and the state of the geopolitical stage, a six-month CD may make sense. “A 6-month CD can make sense for those who are anxious about the geopolitical environment both domestically and abroad,” says Berkel.
Open a six-month CD today.
1 year CD
If your interest is in getting the highest possible performance from your CD, you may want to opt for a 1-year term. In the current interest rate environment, six-month CDs offer better returns than longer-term options, but One-year CDs are paying even more than their six-month-old counterparts.
For example, Popular Direct and Tab Bank offer two of the best 6-month CDs on the market. And, these CDs pay 5.30% and 5.27% APY, respectively. On the other hand, CIBC Bank USA and Limelight Bank offer two of the best one-year CDs on the market. These one-year options pay 5.36% and 5.35% APY, respectively.
Also, while a one-year CD requires some commitment, you don't have to lock up your money for years to come to take advantage of one. But it does allow you to lock in today's high interest rates for a significant period of time, after which the rate climate and the overall economy have stabilized.
5 year CD
Current interest rates are historically high. In fact, the federal funds rate, on which benchmark CD yields are often based, is currently at a Maximum of 23 years. This is important because when you open a CD, you typically lock in its rate of return for the duration of your account.
So, if you're interested in locking in today's high returns for the long term, a five-year CD makes sense. And opening one now might be a good idea.
After all, the inflation rate plays an important role in the federal funds rate. High inflation usually leads to rate hikes, while low inflation usually leads to rate cuts. And inflation cooled in April. With the next inflation report (the May report) due on June 12, 2024, it makes sense to lock in today's strong rates now. After all, if the report shows a continued cooling in inflation, interest rates could fall ahead.
Secure current high rates over the long term with a five-year CD now.
The bottom line
When you open a CD, the term you choose will play a large role in the interest you earn and how effectively this CD helps you achieve your financial goals. If you're looking for a CD right now, consider a six-month, one-year, or five-year term to get the most out of your investment. Compare today's top CDs now.
