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Should you open a CD or savings account before the Fed cuts rates?
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All eyes will be on the Federal Reserve this week as they meet for the first time in 2024.
After raising the benchmark interest rate to a range between 5.25% and 5.50% last summer — the highest it’s been in decades — the Fed held steady and kept rates unchanged for the remainder of the year. They did so as inflation largely cooled, although the latest report did reflect a slight increase (and it is still above the Fed’s target 2% goal).
That all said, many economists are expecting rate cuts in 2024, if not in January then likely in the spring or early summer. This leads to a series of questions for borrowers and savers. For the latter group, it may be worth considering all alternatives. Specifically, is it worth opening a certificate of deposit (CD) or a high-yield savings account before the Fed cuts rates? That’s what we’ll break down below.
See how much you could be earning with a top CD rate here now.
Should you open a CD or savings account before the Fed cuts rates?
The answer to this financial question is personal. What can be beneficial for one saver may not be as advantageous for another. That said, there are some compelling reasons why you should open a CD instead of a savings account before the Fed cuts rates.
CD interest rates are locked for the entire term of the CD — whether that be nine months or 10 years. This is a major advantage in any climate, but especially now when the rates on these account types are expected to fall in tandem with the Fed’s presumed rate cuts. Plus, if you’re looking for the very best interest rate at the expense of some other features, CDs are the way to go as they’re generally higher than popular alternatives like high-yield savings and even money market accounts.
However, if you’re not sure about your ability to keep the money in the account without withdrawing it early, a CD may not be the best option for you, regardless of any Fed activity. That’s because you’ll need to pay an early withdrawal penalty to access your funds again, potentially eliminating all of the interest you’ve earned on the CD to date.
Learn more about your CD options today.
Other considerations
While a CD is typically recommended for savers ahead of prospective interest rate cuts, it’s not a one-size-fits-all approach.
High-yield savings accounts, for example, have rates similar to CDs and, unlike their counterparts, will permit users to withdraw and add funds without penalty. That noted, high-yield savings accounts come with variable interest rates. So if you can get an account with a 4.5% APY right now — and the prevailing interest rate drops to 3.75% in a few months — your account will follow that trend. But that may be a valuable trade-off if it means keeping your funds accessible.
You also don’t need to make it a “one or the other” decision. There are numerous reasons why savers should open both account types in today’s climate and that may be something worth investigating, too. What you shouldn’t do, however, is just leave your money in a regular savings account. The average savings account rate is just 0.47% currently and will fall further when and if the Fed cuts rates. So that means you’re essentially losing money by not making the switch to one or both of these other, higher-earning accounts now.
See how much you could earn with a high-yield savings account right here.
The bottom line
As the Federal Reserve approaches its first interest rate cut in years, savers should prepare themselves. There are valuable reasons to open a CD instead of a savings account before rates drop but there are equally compelling reasons to open a savings account instead (or both). Savers should also remember that even if rates do drop, they’re unlikely to do so dramatically, making both account types valuable for both short- and long-term financial goals.
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$100 million in federal funds released for North Carolina to rebuild roads, bridges damaged by Helene
Washington, D.C. – The U.S. Department of Transportation released $100 million in emergency funds on Saturday for North Carolina to rebuild its roads and bridges damaged by Helene.
“We are providing this initial round of funding so there’s no delay getting roads repaired and reopened, and re-establishing critical routes,” said U.S. Transportation Secretary Pete Buttigieg in a statement. “The Biden-Harris administration will be with North Carolina every step of the way, and today’s emergency funding to help get transportation networks back up and running safely will be followed by additional federal resources.”
The storm caused rampant flooding that has devastated several towns and killed more than 225 people – with CBS News confirming at least 114 people killed in North Carolina. There was more than 8 inches of rain across the western North Carolina mountains, with some areas seeing more than a foot.
Hundreds of roads across Western North Carolina remain closed, leading to an increase in air traffic as teams scour the region for survivors by air. Air traffic over Western North Carolina has increased by 300% due to relief efforts since the storm cleared, the Federal Aviation Administration and the North Carolina Department of Transportation.
Mudslides blocked Interstate 40 and other highways in North Carolina and about 400 roads were closed due to damage from Helene. Interstate 40 was damaged at several locations, the Department of Transportation said.
President Biden visited the Carolinas on Wednesday, surveying the flood damage by air from Greenville, South Carolina, to Asheville, North Carolina. Mr. Biden announced the federal government would cover “100%” of all debris removal and emergency protective measure costs in North Carolina for six months.
The Department of Transportation said these relief funds will allow the North Carolina Department of Transportation to act more quickly to fund eligible repairs to their damaged facilities.
Li Cohen and
contributed to this report.
CBS News
Tropical Storm Milton forms in Gulf; forecast to strengthen into hurricane headed toward Florida
Tropical Storm Milton has formed in the Gulf of Mexico and is forecast to strengthen into a hurricane headed toward Florida with possible impacts to its western coast, the National Hurricane Center said on Saturday. Maximum sustained winds are expected to be at 40 mph with higher gusts and Milton is currently moving north-northeast, NHC said in an advisory.
Milton is forecast to undergo a period of rapid intensification before it makes landfall as a Category 2 hurricane across Florida’s west coast, CBS News Miami reported.
The forecast comes a little more than a week after Hurricane Helene made landfall in Florida and across the Southeast, killing more than 200 people and causing immense destruction. President Biden on Thursday took an aerial tour of Florida’s Big Bend where Helene struck as a Category 4 storm. Hundreds of people are still missing and Mr. Biden said the work to rebuild will cost “billions of dollars” as communities suffer still without power, running water and passable roads.
NOAA
Milton is forecast to move across the southwestern Gulf of Mexico through Sunday night then across the south-central Gulf on Monday and Tuesday before reaching Florida’s west coast by the middle of the week, NHC said. Heavy rain is possible in the region starting Sunday into Monday, CBS Miami reported, and more rain and heavy winds will most likely arrive on Wednesday. Hurricane and storm surge watches will most likely be required for portions of Florida starting Sunday, the National Hurricane Center said.
Along with the heavy rainfall, the hurricane center said to expect risks of flooding.
Residents in the area should ensure they have a hurricane plan in place, the National Hurricane Center said, follow the advice of local officials and check back for forecast updates.
