Are you thinking of opening a CD before the end of July? If so, it’s a good idea.
The next Federal Reserve meeting is scheduled for July 30-31. During that meeting, the central bank could finally decide to go ahead with its first interest rate cut, something it has been talking about doing since the beginning of the year.
Interest rate cuts can be good for consumers, as they can translate into lower borrowing costs for products like loans and credit cards. But they can also be bad for those who have money in the bank, as they can lead to lower rates for savings accounts and certificates of deposit.
So if you’re interested in opening a CD, you may want to act quickly. Right now, many CDs pay annualized rate yields (APYs) of 5.00% or even a bit more. But we don’t know what rates will look like after the Fed’s first cut.
Our picks for the best high-yield savings accounts of 2024
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High-yield savings from American Express® 
APY 4.25%
Rate information
4.25% annual percentage yield as of July 23, 2024
Member FDIC. |
APY 4.25%
Rate information
4.25% annual percentage yield as of July 23, 2024 |
Minimum to win $1 |
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NexBank High Yield Savings Account by Raisin 
Member FDIC. |
Minimum to win $1 |
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Western Alliance Bank Premier High Yield Savings Account 
APY 5.31%
Rate information
The 5.31% Annual Percentage Yield (APY) is accurate as of 11/7/2024 and is subject to change at the Bank’s discretion. The minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to obtain the advertised APY. Minimum to win $500 to open, $0.01 for maximum APY
Member FDIC. |
APY 5.31%
Rate information
The 5.31% Annual Percentage Yield (APY) is accurate as of 11/7/2024 and is subject to change at the Bank’s discretion. The minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to obtain the advertised APY. |
Minimum to win $500 to open, $0.01 for maximum APY |
At the same time, it’s important to be strategic when opening your next CD. Below are three big mistakes you should do your best to avoid.
1. Use a CD to house your emergency fund
It’s important to have money set aside for emergency expenses at all times. Those expenses could be anything from medical bills to home repairs. Or you may need an emergency fund to pay for your expenses. all of your bills if you lose your job through no fault of your own.
But one thing you shouldn’t do is put your emergency fund in a CD. Because an emergency can happen at any time, you don’t want to keep money in a CD. Withdrawing your cash from one early usually results in a costly penalty, the exact amount of which will depend on your bank.
As a general rule, it’s a good idea to have enough money set aside for emergencies to cover three months of essential bills. So, if your essential monthly expenses add up to $2,500 and you have $7,500 to your name, you’re in pretty good shape. But that money should stay in a regular savings account, not a CD.
The good news, however, is that thanks to today’s high interest rates, you can earn almost as much interest in a high-yield savings account as you can in a CD. And while it’s true that savings account rates aren’t fixed like CD rates are, you do get the benefit of greater flexibility.
2. Choosing a term that does not fit your financial plans
It’s known that CD rates could fall once the Federal Reserve starts cutting interest rates. So your goal this July may be to lock in the highest possible interest rate on a CD, regardless of its length or term.
However, that’s not the best approach to opening a CD. Instead of looking for the highest rate, you should choose a CD that fits your financial goals and plans.
Let’s say you find the best rate today on a 12-month CD. But what if the money you’re putting into that CD is cash that you might need sooner?
Let’s say you got engaged last month and are trying to set a wedding date. You might assume that a 12-month CD is fine. But if you can get a better deal on a wedding venue next March because it’s considered off-season, then you might decide to go for it.
However, in this situation, you’re not necessarily in the best position if your money (money you may have wanted to use to pay for your wedding) is tied up in a 12-month CD that doesn’t mature until July 2025. In this case, a 6-month CD seems like a safer bet, even if it means settling for a slightly lower rate.
3. Not setting up a CD ladder
The downside to opening a CD is the risk of being penalized if you withdraw your cash before maturity. So, instead of opening a single CD this July, one option you may want to consider is a CD ladder.
With a CD ladder, you take your money and divide it into different CDs with different terms. The goal is to set yourself up for a portion of your money to be released every few months or at an interval you’re comfortable with.
For example, you might be inclined to open a 12-month CD this July because it’s the best rate your bank is offering. But if you end up needing money after seven months, you’ll face a penalty. So a good bet might be to take your money, split it into four parts, and open a 3-month CD, a 6-month CD, a 9-month CD, and a 12-month CD with equal deposits.
July might be a good time to close a CD while rates are rising, but be sure to avoid these potentially costly mistakes when opening one.
These savings accounts are FDIC insured and could allow you to earn 14 times your bank investment.
Many people are missing out on the opportunity to earn guaranteed returns while their money sits in a big savings account at a bank that earns almost no interest. Our picks for the best investments The best online savings accounts You could earn 14 times the national average savings account rate. Click here to discover the best-in-class accounts that earned a spot on our shortlist of the best savings accounts for 2024.
