Savers who have been accustomed to earning high rates on their money for very little effort may soon need to change their approach. After all, in recent years, inflation was elevated and interest rates were high in an attempt to tame it. But inflation has dropped significantly in recent months, plummeting to its lowest point in three years. The Federal Reserve has responded accordingly, cutting its federal funds rate for the first time since 2020. Additional reductions appear likely, too, for when the Fed meets again in November and December. 

Against this backdrop, then, savers may want to make some strategic moves now, while rates are still relatively high and accessible. One of the best ways to take advantage is by opening a certificate of deposit (CD) account with an online bank. Below, we’ll explain why you should do so now.

See how much more you could be earning on your money with a top CD here.

Why you should open a CD with an online bank now

In the face of looming interest rate cuts and with the reality of one already issued this year, savers will want to lock in a high rate right now while they still can. While high-yield savings accounts offer this opportunity, the rates on these accounts are variable and likely to drop as the federal funds rate does (even if not in direct proportion). 

CD accounts, however, have locked rates that will remain the same for the full CD term despite any rate cooling in the larger economy. That’s a major advantage for savers, particularly considering that CD terms can last multiple years. It’s not hard to find an account with a term of three years or longer with a rate in the 4% to 5% range today. But, in general, you’ll need to open a CD with an online bank to get it.

Why an online bank and not a lender with physical branch locations? While not a uniform rule, online banks tend to offer higher interest rates than those banks that have the expenses of maintaining physical branches. Because online banks don’t have to pay for items like rent, maintenance and staffing a brick-and-mortar location, they’re able to save more money – and pass those savings on to customers in the form of higher interest rates. 

CDs are one of the avenues in which they can do that. It’s not always the case and, in some instances, you may be able to find a higher rate with a local bank branch in your neighborhood. But, in general, if you want to lock in a CD with the highest rate possible – as you’ll want to do now with additional rate cuts looming – an online bank is the best way to do so.

Get started with a high-rate CD online today.

What about regular savings accounts?

Searching around for a CD account online is easy but, for some, it may be more tempting to simply leave their money in a regular savings account instead. But that would be a mistake. For starters, the average interest rate on a traditional savings account today is just 0.46%. You can easily find a CD with a rate of 4% online now, making the latter 769% better than the former. Plus, savings accounts come with variable rates that can and will change as rate cuts are issued. In other words, that minimal 0.46% return is likely to drop even further and further as rates decline. When compared to this realistic scenario, then, a CD opened with an online bank becomes the clear best option.

The bottom line

If you haven’t yet opened a CD online or want to open another one, now is the right time to act, before interest rate cuts reduce what you can earn with these reliable savings vehicles. Online banks, in general, offer better rates and terms than banks with physical branches. No matter which option you choose, though, you’ll likely do better than you can by leaving your funds untouched in a regular savings account. But the timing here is key. With the Fed set to meet two additional times this year, this current cycle of high CD rates could soon be coming to an end. So don’t let the opportunity slip by.

Explore your best CD options online today.