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Are short-term CDs still worth opening? Experts weigh in
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While elevated interest rates have slowed the housing market in recent years, they’ve been a boon for those with savings deposit accounts, including certificates of deposit (CDs). However, the tides could be shifting due to a couple of key economic developments.
First, inflation is trending downward. According to the Bureau of Labor Statistics, the all-items index increased by 2.9% annually in July, marking the smallest yearly rise since March 2021. Second, as the inflation rate moves towards the Federal Reserve’s stated target rate of 2%, the Fed is widely expected to lower interest rates at its meeting later this month. In fact, the CME FedWatch tool predicts at 100% the likelihood that the agency will cut the federal funds rate in September, with a 61% chance the cut will be by 25 basis points.
Any rate cut by the Fed could affect interest rates on deposit accounts like high-yield savings accounts and CDs. Yields are already beginning to adjust downward and could fall further. While it may be tempting to lock in a higher yield with a long-term CD, short-term CDs often offer even higher rates right now. Short-term CDs are savings accounts with terms lasting one year or less, typically three months, six months, or one year.
So with interest rates and inflation easing, is opening a short-term CD still worth it? Let’s see what experts say about how a short-term CD could benefit you.
Don’t miss out on the opportunity to open a high-rate CD. Compare your top CD account options here.
Short-term CDs are still worth opening, experts say. Here’s why
“Even with a September rate cut expected, short-term CDs can still offer a compelling alternative for consumers versus a normal checking or savings account,” says Christopher Stroup, a certified financial planner for Silicon Beach Financial. “For those consumers willing to sacrifice some liquidity for a higher interest rate, you can still expect short-term CDs to offer higher yields than comparable products like a high-yield savings account.”
Many of today’s best CD accounts offer rates over 5%. As Stoup mentions, earning a substantial yield may be worth locking in your rate. Keep in mind, though, that if you need to withdraw funds from your CD account before it matures, you could incur an early withdrawal penalty equal to a specific period of earned interest.
Short-term CDs also allow you to earn interest on the money you’re saving for a specific shorter-term goal. For example, if you’re saving cash for a down payment on a car in six months, opening a CD that matures during that time frame could help you earn interest without sacrificing your savings.
“CDs tend to be more appropriate for a very specific short-term goal with a clear timeline, as long as you are confident the funds won’t need to be accessed early. That’s why it’s a good idea to ensure there’s enough liquid savings elsewhere, such as a high-yield savings account, that can be accessed penalty-free at a moment’s notice if needed,” Eddy Jurgielewicz, a partner and lead financial planner at Upbeat Wealth, notes.
Find out the top CD rates available to you today.
Other alternatives worth considering
Currently, many high-yield savings accounts offer yields over 5%. CDs and high-yield savings accounts commonly offer higher rates than the average savings rate of 0.46%.
You might also consider purchasing Treasury debt, which is government-issued debt that typically offers interest rates comparable to CDs. Treasury bills, or T-bills, are a popular form of Treasury debt investments that are sold at a discount and mature in terms ranging from a month to a year.
“Treasuries are exempt from state and local income tax, and they are safe and backed by the full faith and credit of the U.S. government,” Amanda Vaught, a financial advisor and owner of Propel Financial Advisors, says.
As a result, it’s unlikely you’ll lose your investment, just as FDIC insurance backs your CD deposits up to their limits.
The bottom line
Is opening a short-term CD worth it for you?
“As with most financial questions like this, it depends on your circumstances,” says Vaught. “For a person who has short-term cash needs, a short-term CD may make sense. This could include cash savings for emergency savings accounts, or savings set aside for a near-term goal with a specific date in mind, such as a vacation or new home furniture.”
If you are keen on opening a CD account, you might consider doing so before interest rates drop. If the expected Federal Reserve rate cut this month marks the start of a trend toward lower rates, locking in today’s rate may make sense. Review the pros and cons of a short-term CD before opening your account, and make sure you use funds you’re reasonably certain you won’t need during the term.
Legislation to expand Social Security benefits to millions of Americans passed the U.S. Senate early Saturday and is now headed to the desk of President Joe Biden, who is expected to sign the measure into law.
Senators voted 76-20 for the Social Security Fairness Act, which would eliminate two federal policies that prevent nearly 3 million people, including police officers, firefighters, postal workers, teachers and others with a public pension, from collecting their full Social Security benefits. The legislation has been decades in the making, as the Senate held its first hearings into the policies in 2003.
“The Senate finally corrects a 50-year mistake,” proclaimed Senate Majority Leader Chuck Schumer, a Democrat from New York, after senators approved the legislation at 12:15 a.m. Saturday.
The bill’s passage is “a monumental victory for millions of public service workers who have been denied the full benefits they’ve rightfully earned,” said Shannon Benton, executive director for the Senior Citizens League, which advocates for retirees and which has long pushed for the expansion of Social Security benefits. “This legislation finally restores fairness to the system and ensures the hard work of teachers, first responders and countless public employees is truly recognized.”
The vote came down to the wire, as the Senate looked to wrap up its current session. Senators rejected four amendments and a budgetary point of order late Friday night that would have derailed the measure, given the small window of time left to pass it.
Vice President-elect JD Vance of Ohio was among the 24 Republican senators to join 49 Democrats to advance the measure in an initial procedural vote that took place Wednesday.
“Social Security is a bedrock of our middle class. You pay into it for 40 quarters, you earned it, it should be there when you retire,” Ohio Senator Sherrod Brown, a Democrat who lost his seat in the November election, told the chamber ahead of Wednesday’s vote. “All these workers are asking for is for what they earned.”
What is the Social Security Fairness Act?
The Social Security Fairness Act would repeal two federal policies — the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) — that reduce Social Security payments to nearly 3 million retirees.
That includes those who also collect pensions from state and federal jobs that aren’t covered by Social Security, including teachers, police officers and U.S. postal workers. The bill would also end a second provision that reduces Social Security benefits for those workers’ surviving spouses and family members. The WEP impacts about 2 million Social Security beneficiaries and the GPO nearly 800,000 retirees.
The measure, which passed the House in November, had 62 cosponsors when it was introduced in the Senate last year. Yet the bill’s bipartisan support eroded in recent days, with some Republican lawmakers voicing doubts due to its cost. According to the Congressional Budget Office, the proposed legislation would add a projected $195 billion to federal deficits over a decade.
Without Senate approval, the bill’s fate would have ended with the current session of Congress and would have needed to be re-introduced in the next Congress.
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Saturday is the winter solstice and 2024’s shortest day. Here’s what to know about the official start of winter.
The 2024 winter solstice, the shortest day of the year, happens on Saturday, Dec. 21, in the Northern Hemisphere. The celestial event signifies the first day of winter, astronomically.
What is the winter solstice?
The winter solstice is the day each year that has the shortest period of daylight between sunrise and sunset, and therefore the longest night. It happens when the sun is directly above the Tropic of Capricorn, a line of latitude that circles the globe south of the equator, the National Weather Service explains.
The farther north you are, the shorter the day will be, and in the Arctic Circle, the sun won’t rise at all.
How is the day of the winter solstice determined?
The winter solstice occurs because of the Earth’s tilt as it rotates around the sun.
When the Northern Hemisphere tilts away from the sun, the nights last longer. The longest night happens on the solstice because the hemisphere is in its furthest position from the sun. That occurs each year on Dec. 21 or 22.
This year, it falls on Dec. 21 at 4:21 a.m ET, to be precise.
On the summer solstice, when the northern tilt is closest to the sun, we have the longest day, usually June 20 or 21.
National Weather Service
The solstices are not always exactly on the 21st every year because the earth’s rotation around the sun is 365.25 days, instead of 365 even.
Will days start getting longer after the winter solstice?
Yes. Each day after the solstice, we get one minute more of sunlight. It doesn’t sound like much, but after just two months, or around 60 days, we’ll be seeing about an hour more of sunlight.
When will winter officially be over in 2025?
The meteorological winter ends on March 20, 2025. Then, spring will last until June 20, when the summer solstice arrives.
How is the winter solstice celebrated around the world?
Nations and cultures around the world have celebrated the solstice since ancient times with varying rituals and traditions. The influence of those solstice traditions can still be seen in our celebrations of holidays like Christmas and Hanukkah, Britannica notes.
The ancient Roman Saturnalia festival celebrated the end of the planting season and has close ties with modern-day Christmas. It honored Saturn, the god of harvest and farming. The multiple-day affair had lots of food, games and celebrations. Presents were given to children and the poor, and slaves were allowed to stop working.
Gatherings are held every year at Stonehenge, a monumental circle of massive stones in England that dates back about 5,000 years. The origins of Stonehenge are shrouded in mystery, but it was built to align with the sun on solstice days.
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The Hopi, a Native American tribe in the northern Arizona area, celebrate the winter solstice with dancing, purification and sometimes gift-giving. A sacred ritual known as the Soyal Ceremony marks the annual milestone.
In Peru, people honor the return of the sun god on the winter solstice. The ancient tradition would be to hold sacrificial ceremonies, but today, people hold mock sacrifices to celebrate. Because Peru is in the Southern Hemisphere, their winter solstice happens in June, when the Northern Hemisphere is marking its summer solstice.
Scandinavia celebrates St. Lucia’s Day, a festival of lights.
The “arrival of winter,” or Dong Zhi, is a Chinese festival where family gathers to celebrate the year so far. Traditional foods include tang yuan, sweet rice balls with a black sesame filling. It’s believed to have its origins in post-harvest celebrations.
Researchers stationed in in Antarctica even have their own traditions, which may include an icy plunge into the polar waters. They celebrate “midwinter” with festive meals, movies and sometimes homemade gifts.