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The moment borrowers had been waiting for finally came last month when the Federal Reserve lowered the federal funds rate for the first time in four years. Of inflation After a significant slowdown from recent years, the Fed felt safe in cutting rates – and it could cut rates again in November and December. While this is great news for borrowers struggling with higher rates on everything from mortgages to credit cards, it’s a disadvantage for savers who have earned big returns.
Immediately certificate of deposit (CD) accountsavers have one rate from 4% to 5% or higher. And while a rate cut will inevitably reduce what savers can earn with CDs, the interest rate environment has not yet adjusted so dramatically that the value of today’s top CDs has fallen. It may take a little more work to get a big return than it would have, say, at an earlier time in 2024. Below, we discuss three ways savers can earn big CD returns now, even as interest rates are cut.
See here how much more you can earn on your money with a top CD.
How to Earn Big CD Returns When Interest Rates Are Cut
While September’s rate cut didn’t significantly change what you can earn with a CD, it’s a good idea to take action now before that happens. In concrete terms, savers must currently:
Shop around
The highest CD interest rates are generally found at online banks versus those with physical locations. And that is no different now, even though further interest rate cuts are looming. So start looking around online to see what you can pin. Because online banks don’t have the fees that banks with a physical location do, you can generally find a higher rate if you look for an online lender. Even a small difference in rates can add up to big savings CD term.
Get started with a CD here now.
Open a long-term CD
A long-term CD doesn’t have as high an interest rate as a short term CD right now – a direct opposite of historical norms. But the difference is negligible, and you can still earn an interest rate of 4% or higher with a long-term CD. And by opening one now, you can earn great returns over a longer period of time 18 months or longer, even as the broader climate cools. That fixed rate is a major advantage, especially compared to the volatility that comes with traditional savings accounts savings accounts with a high return thanks to their variable rate structure.
Consider a larger deposit
The more you deposit into a CD, the more you can earn. A $5,000 deposit into a 5-year CD with a 4.35% rate will result in a profit of almost $1,200. If you double your deposit, you double your winnings. But even a short-term CD with a substantial five-figure down payment could deliver this hundreds of dollars earned in a short period of time. Remember to limit your deposit to an amount that you can leave untouched in the account for the entire term, otherwise you risk having to pay a hefty sum. early withdrawal penalty to regain access to your money.
The bottom line
Although interest rates have been reduced, they have not been reduced so dramatically that they reduce the benefit of a CD account. But that does not mean that savers have to wait much longer before trading. Instead, start shopping around now to find a CD that offers the highest rate. Consider a long-term CD to maintain those high returns even as rates drop, and try to deposit a larger amount to take advantage of the opportunity while it still exists. By taking these steps now, you can achieve great returns immediately and possibly for years to come.
