If you’re looking for a safe way to grow your idle money, a certificate of deposit (CD) might be the perfect savings vehicle. After all, the Federal Reserve has increased its target federal funds rate 11 times in the past two years to try and combat inflation. That, in turn, has driven CD returns up, as the federal funds rate forms the foundation for returns on deposit accounts. 

But today’s high returns may not last forever. 

Recent economic markers suggest that the Federal Reserve’s attempts to combat inflation are working. As such, many experts expect interest rates to come down at some point in 2024. So, this may be a good time to move money into a long-term CD — but should you move all of your money to one? Maybe not, but chances are a long-term CD will fit well in your financial plan. 

Open a long-term CD now before rates start to fall. 

Should you move all of your money to a long-term CD today?

When you open a CD, you agree to keep your money in the account until the end of the CD term. That’s part of why financial institutions are willing to pay such competitive APYs on these accounts. On the other hand, it also means that you’ll probably pay a fee if you need to access your money early. 

Because you can’t regularly access your money that’s in a long-term CD, it’s generally not the best place to put the money you plan to use regularly — or the money you may need to tap into with little warning. For example, these accounts typically aren’t a great option for your emergency savings since emergencies aren’t going to wait until you have unfettered access to your cash. 

How much money should you put into a long-term CD?

There isn’t a perfect amount of money to deposit in a long-term CD. The right amount depends heavily on your unique financial situation. That said, there are a few factors to consider when deciding the amount to deposit in a long-term CD: 

• Your emergency savings: Make sure you have a strong emergency savings account before opening a long-term CD. If your emergency savings is flush with funds, a long-term CD may be a good home for any excess money you have.
• Your risk appetite: Long-term CDs are a minimal-risk investment vehicle. If you’re a risk-averse investor, you’ll likely want to invest more into these accounts than an investor who can handle a little more risk. 
• Your long-term savings goals: Long-term CDs are often a smart way to achieve your long-term savings goals. So, consider these goals as you determine how much money to deposit into one of these accounts.    

Open a long-term CD now to make your idle cash work harder for you. 

Benefits of long-term CDs

The potential to earn a meaningful return isn’t the only reason you should consider a long-term CD. Other reasons to consider one of these accounts include: 

You can lock in today’s competitive returns

“Because the Federal Reserve has held off from raising interest rates over the last several months, now may be a good time to lock in a long-term (12-months or more) CD,” says Krisstin Petersmarck, investment advisor representative at Bridgeriver Advisors. “If interest rates begin to decline, so will the guaranteed interest rates associated with CDs.”

Stacy Black, BECU’s lead financial educator, has a similar opinion. 

“Since many experts are predicting a drop in CD interest rates in 2024, I recommend opening a long-term CD now while rates are more favorable,” Black said. “The market is volatile and there are no guarantees what interest rates may look like within the next year. Once you have locked in your CD rate, take pride in knowing that you are proactively saving for your future self.”

So, when you open a CD today, you’ll enjoy today’s high rates for the entire term of the account. 

CDs are safe

CDs are deposit accounts, so as long as you open your account with a legitimate financial institution, your CD should come with FDIC or NCUA insurance that covers you for up to $250,000 per depositor, per account. So, even if the bank were to fail, your money is safe. But that’s not the only way CDs are safe. 

These accounts also offer reliable returns. Thanks to their fixed interest rates, you can expect a stable return regardless of the state of the market or the economy. So, long-term CDs could bring some stability to your investment portfolio. 

They can help you achieve your long-term savings goals

Long-term CDs can also help you bring discipline to your savings practices. After all, if you access your money early, you’ll likely have to pay an early withdrawal fee, so chances are that you’ll be less likely to do so. As a result, you’ll be more likely to achieve your long-term savings goals. 

Explore how long-term CDs offer better chances of achieving your savings goals. 

The bottom line

Long-term CDs are an effective way to meet your savings goals. Moreover, with many expecting rate reductions in 2024, now may be the time to lock in today’s high rates while protecting your money in an account that’s known for safety. Open a long-term CD today to do just that. 

Joshua Rodriguez

Joshua Rodriguez is a personal finance and investing writer with a passion for his craft. When he’s not working, he enjoys time with his wife, two kids, three dogs and 10 ducks.