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How to make CD accounts valuable as interest rates drop
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The U.S. economy is stabilizing after years of turbulence. Inflation has cooled from its 9.1% peak in 2022 to 2.5% in August 2024, though it’s still above the Federal Reserve’s 2% target. Interest rates remain high, with the federal funds rate frozen between 5.25% and 5.50%.
These high rates have been a boon for savers, especially those using certificates of deposit (CDs). Many banks are offering CD rates up to 4% to 5%, a significant jump from the 0.19% average in May 2021. But as the Fed considers potential rate cuts, savers need new strategies.
We consulted three financial experts to get their best tips for getting the most out of CDs in the coming months. They shed light on smart CD moves, explain why CDs are still worthwhile and discuss the benefits of opening one now — even with possible rate drops ahead.
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How to make CDs valuable as interest rates drop
Even with the Fed set to start cutting rates, CDs can still be a powerful tool in your savings arsenal. The key is knowing how to use them well in a changing market.
John F. Pace, certified public accountant at Pace & Associates, CPAs, puts today’s rates in perspective: “In the 1980s, we saw CD rates climb over 10% at times, allowing clients to maximize returns in a high-rate environment.” He explains that while rates are much lower than that today, they’re still favorable compared to recent history.
Expert strategies for CD investments
To help you make smart CD moves, we’ve gathered advice from two financial professionals — Pace of Pace & Associates, CPAs, and Henry Yoshida, certified financial planner and co-founder of Rocket Dollar.
Here are their top tips for getting the most out of your CD investments in the current environment:
- Match CD terms to your goals: Yoshida advises, “First, align [your] timeframe for money earmarked for CDs/savings before embarking on CD purchases.” If you’re saving for a house or down payment in two to four years, long-term CDs might work best. These tend to have less sensitivity to short-term interest rate cuts.
- Consider short-term CDs for flexibility: “Focus on short-term CDs, around six to 12 months, [if you want to] benefit from existing CD rates before a potential drop,” suggests Pace. These often offer competitive rates and let you reassess your options sooner.
- Try CD laddering: Yoshida recommends “laddering out from six months to five years to keep your slight edge over prevailing rates.” This means spreading your money across CDs with different maturity dates.
- Compare CDs to high-yield savings accounts: For short six to 15-month periods, CDs often hold higher rates than high-yield savings accounts, according to Yoshida.
- Take advantage of promotional rates: Pace shares an example of a client who “opened a 9-month CD at 2.5% to take advantage of a promotional rate.” Keep an eye out for these special offers.
- Reassess at maturity: When your CD matures, review current rates. If rates have changed, you can reinvest in another CD or explore other options.
Get started with a CD while interest rates are still high.
Why CDs remain attractive in a declining rate environment
“CDs right now are still a good investment option, even if the Federal Reserve does reduce interest rates. If you go back to 2021 CD interest rates, they weren’t even at half of a percent,” says Krisstin Petersmarck, investment advisor representative at New Horizon Retirement Solutions. This highlights how far CD rates have come, and why they’re still worth considering.
Pace advises not to wait, saying, “Though rates may decline in coming months, [you] shouldn’t hesitate to lock in existing rates, particularly through short-term CDs.” He notes that even a small rate difference can add up to thousands of dollars over time.
Yoshida shares another reason to act now. “CD rates typically lag the actual interest rate at any given time, so there’s an opportunity to [secure] some arbitrage between current interest rates and lagging CD rates,” he says. In simple terms, you might be able to get a better deal on a CD now than you would on other savings options.
The bottom line
“The best strategy is to invest in a CD now rather than waiting,” Petersmarck advises. But remember, unlike high-yield savings accounts, CDs lock up your money for a set time. You may be subject to withdrawal penalties if you need to access funds before the term ends.
To find the right fit, think about when you’ll need your cash and how much risk you’re comfortable with. Compare CD rates from different banks and lenders and don’t hesitate to ask a financial advisor for help. They can walk you through your options, explain CD terms and help you decide if CDs make sense for your financial goals.
TRENTON, N.J. — Democratic Newark City Council President LaMonica McIver has defeated Republican small businessman Carmen Bucco in a contest in New Jersey’s 10th Congressional District that opened up because of the death of Rep. Donald Payne Jr. in April.
McIver will serve out the remainder of Payne’s term, which ends in January. She and Bucco will face a rematch on the November ballot for the full term.
McIver said in a statement Wednesday that she stands on the “shoulders of giants,” naming Payne as chief among them.
She cast ahead to the November election, saying the right to make reproductive health choices was on the ballot as well as whether the economy should benefit the wealthy or “hard working Americans.”
“I will fight because the purpose of politics and the purpose of our vote is to give the people of our communities and our nation a bold voice,” she said.
Bucco congratulated McIver on the victory in a statement but said he’s looking forward to the rematch in November.
“I am not going anywhere,” he said in an email. “We still have a second chance to make district 10 great again!”
Who are LaMonica McIver and Carmen Bucco?
McIver emerged as the Democratic candidate in a crowded field in the July special election. A member of the city council of New Jersey’s biggest city since 2018, she also worked for Montclair Public Schools as a personnel director and plans to focus on affordability, infrastructure, abortion rights and “protecting our democracy,” she told The Associated Press earlier this summer.
Bucco describes himself on his campaign website as a small-business owner influenced by his upbringing in the foster system. He lists support for law enforcement and ending corruption as top issues.
The 10th District lies in a heavily Democratic and majority-Black region of northern New Jersey. Republicans are outnumbered by more than 6 to 1.
It’s been a volatile year for Democrats in New Jersey, where the party dominates state government and the congressional delegation.
Among the developments were the conviction on federal bribery charges of U.S. Sen. Bob Menendez, who has denied the charges, and the demise of the so-called county party line — a system in which local political leaders give their preferred candidates favorable position on the primary ballot.
Democratic Rep. Andy Kim, who’s running for Menendez’s seat, and other Democrats brought a federal lawsuit challenging the practice as part of his campaign to oust Menendez, who has resigned since his conviction.
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Sean “Diddy” Combs at same Brooklyn detention center that held R. Kelly, Sam Bankman-Fried, other high-profile inmates
A second judge refused to grant bail to Sean “Diddy” Combs on Wednesday and he could remain in federal custody at a Brooklyn detention center until his trial for sex trafficking charges. Combs joins other high-profile inmates, such as singer R. Kelly, fallen cryptocurrency mogul Sam Bankman-Fried, rapper Ja Rule —even Al Sharpton served a brief stint— who were held at the same federal detention center.
Notorious for its horrible conditions —inmates won a $10 million class action settlement after enduring frigid conditions during an 8-day blackout in 2019— the waterfront industrial complex, MDC Brooklyn, houses 1,200 inmates.
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Violence and corruption have long plagued the facility; U.S. District Judge Gary R. Brown of the Eastern District of New York wrote the detention center had “dangerous, barbaric conditions” in a recent sentencing opinion. Two inmates were stabbed to death in recent months and several correction officers have been convicted for smuggling contraband and accepting bribes.
Combs joins a list of high-profile personalities that have landed at the MDC Brooklyn, partly because the city’s other federal detention center, MDC New York, closed in 2021, also due to horrible conditions. The disgraced financier Jeffrey Epstein died by suicide in his cell there in 2019. “Numerous and serious” instances of misconduct among corrections staff gave Epstein the opportunity to kill himself, a subsequent federal watchdog investigation found.
Kelly sued the federal detention center in 2022 for wrongly putting him on suicide watch after his sentencing. Kelly sought $100 million because he said the detention center knew he wasn’t suicidal after he was convicted in 2021 for racketeering and violating the Mann Act, which bars transporting people across state lines for prostitution.
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Former crypto billionaire Bankman-Fried survived on bread, water and sometimes peanut butter when he was in the MDC Brooklyn, his attorney said, because the detention center continued to serve him a “flesh diet” despite requests for vegan dishes.
Ja Rule stayed at the MDC Brooklyn for a brief time before being released after serving most of his two-year sentence for illegal gun possession. Most of his prison time was spent in a state prison in New York.
Sharpton served a 90-day sentence in 2001 and went on a hunger strike for protesting the U.S. Navy bombing of the island of Vieques, in Puerto Rico.
Combs was taken into custody on Monday and according to an indictment unsealed Tuesday he was charged with sex trafficking, racketeering conspiracy and transportation to engage in prostitution.
His attorney Marc Agnifilo told CBS News, “It’s impossible to prepare for a trial from where he is,” after a first federal judge denied Combs bail on Tuesday.
U.S. Magistrate Judge Robyn Tarnofsky agreed with prosecutors who argued the hip-hop mogul, who is accused of using his business empire as a criminal enterprise to conceal his alleged abuse of women, is a flight risk and poses an ongoing threat to the safety of the community.
Agnifilo said the part of the detention center where Combs is being held is “a very difficult place to be.”
contributed to this report.
