Key takeaways Short-term CDs typically are those that mature within one year, while long-term CDs have terms ranging from three to five years. Currently, some top-earning long-term CDs have slightly higher interest rates than short-term ones. You can use a CD ladder to take advantage of the benefits of both short-term and long-term CDs. Certificate of deposit (CD) terms typically range from three months to five years, and their guaranteed annual percentage yield (APY) can make them worthwhile in ...

Core Insights - Interest rates on certificates of deposit (CDs) have decreased, with the average rate now below 2% since the Federal Reserve's rate cuts began in September 2024 [1] - Despite the decline, there are still CDs available that offer rates over 4% APY, making them a viable investment option [2] - CDs are particularly suitable for saving towards specific future goals, such as a home down payment or wedding expenses [3] Investment Characteristics - CDs allow investors to lock in a competitive fixed rate for a specified term, typically ranging from six months to five years, with penalty-free access to funds upon maturity [4] - On average, CDs provide about one percentage point higher interest than traditional savings accounts, with fixed rates that do not fluctuate during the term [5] - A high-yield savings account (HYSA) may offer similar rates, but the fixed nature of CDs can make them a better choice if funds are not needed until maturity [6] Maximizing Returns - Maintaining a separate emergency fund is crucial, as withdrawing from a CD before maturity incurs penalties [8] - Shopping around for the best CD rates is essential, as there is significant variation among financial institutions, with rates potentially reaching 3-4% [9] - Monitoring Federal Reserve actions is important, as changes in the federal funds rate directly influence CD rates, allowing investors to choose optimal terms [10] Strategic Considerations - Investors should hold CDs until maturity to avoid penalties, which can include losing several months' worth of interest or a percentage of the interest earned [11][12] - In anticipation of rate increases, investors may consider short-term CDs or a CD ladder strategy to take advantage of higher yields later [12] - For expected rate cuts, long-term CDs with locked-in competitive rates should be prioritized [12]

Core Viewpoint - The article discusses the decline in savings account interest rates, which have fallen from over 5% in 2024 to around 4% APY, and explores the factors influencing these rates, particularly the Federal Reserve's monetary policy decisions [1][5]. Group 1: Factors Affecting Savings Account Rates - Savings account rates are variable and can change based on banks' strategies to attract customers or manage deposit capital needs [2]. - The federal funds rate, set by the Federal Reserve, significantly influences savings account rates, as it affects the cost of lending between banks [3][4]. - The Federal Reserve aims to maintain an inflation rate of about 2%, adjusting the federal funds rate to either stimulate or cool the economy, which in turn impacts savings account rates [4][5]. Group 2: Recent Trends and Future Outlook - The national average savings account rate is currently 0.39%, a significant increase from 0.06% four years ago, largely due to previous interest rate hikes by the Fed [5][6]. - The federal funds rate increased from 0.25%-0.5% in January 2022 to 5.25%-5.5% by July 2023, but has since begun to decrease, leading to a drop in savings account rates [6][7]. - There is uncertainty regarding future rate cuts, with less than a 25% chance of a cut in January 2026, and differing opinions among Federal Open Market Committee members on the necessity of rate cuts [7][8]. Group 3: Potential Changes in Federal Reserve Leadership - The expectation of a lower target federal funds rate may be influenced by potential changes in Fed leadership, particularly if Kevin Hassett is nominated to replace Jerome Powell [9][10]. - Hassett is viewed as an advocate for lower interest rates, which could impact the Fed's approach to managing inflation and the labor market [10]. Group 4: Strategies for Maximizing Savings - With savings account rates likely to continue decreasing, exploring alternatives like Certificates of Deposit (CDs) may be beneficial, as they can offer fixed rates above 4% APY [11][12]. - A CD ladder strategy can provide a balance between earning higher rates and maintaining liquidity by staggering maturity dates [13].