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Certificates of Deposit have long been a safe investment, but they have become more attractive in recent years CD rates CD yields rose on repeated hikes in the federal interest rate as the U.S. Federal Reserve sought to control inflation, which had been high for decades.
The Federal Reserve now has its first interest rate cut In four years, the days of CD rates above 5.00% may be numbered — and long term cds have already seen a decline in yields.
Against this backdrop, some investors may wonder whether it is worth locking up money for the duration of a CD termIf you’re still unsure whether it’s worth opening long-term CDs in October, it’s a good idea to weigh the pros and cons now.
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Is it still worth opening long-running CDs in October?
With the Federal Reserve’s rate cut, CD yields are likely to be lower than their recent peak in October. However, rates may still be competitive in historical terms, so it may be worth seizing the opportunity to lock in before yields fall further.
“By locking in a CD at current rates, you may be able to secure a higher return before rates drop, making it a good option for those seeking stable, guaranteed returns,” advises Douglas A. Boneparth, a Certified Financial Planner, financial advisor and president of Bone Fide Wealth, LLC. “With the potential for lower rates on the horizon, longer-term CDs become more attractive because they protect you from the risk of earning less with other savings products, such as high-yield savings accounts or money market mutual funds.”
Domenick D’Andrea, AIF, CRC, CPFA, a financial advisor and co-founder of DanDarah Wealth Management, agrees that long-term CDs will be a good buy in October for investors who want to lock in their investments before additional rate cuts come. He believes the Fed is likely to cut rates at each of its next two meetings. It would be wise to act before that happens. “I believe long-term CDs should still be a viable option for at least the next three months as part of a plan,” he advises.
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What are the alternatives?
While there is an argument to be made that interest rates on long-term CDs are still competitive enough in October to make them worth buying, that doesn’t mean they’re the right choice for everyone.
“The decision to invest in CDs depends on your financial situation, goals and risk tolerance,” advises Kelley Leix, Senior Vice President, Client Deposit Services at Merchants Bank. “Securing a CD can allow you to take advantage of today’s higher rates for a longer period of time. However, short-term CDs may offer the best opportunity, as banks are currently offering higher rates on short-term CDs to attract deposits in a competitive market.”
Leiz explained that banks are hesitant to offer long-term CDs at high rates with the expectation of looming rate cuts, so there may be more opportunities elsewhere. “By focusing on short-term CDs, investors can remain competitive without the risk of being locked into high rates during periods of economic uncertainty.”
D’Andrea also warned that there is a serious downside to long-term CDs for some investors. “The biggest concern is the reinvestment risk,” he said. “You’re probably not going to see rates that high again anytime soon. If you need this amount of money to generate a specific monthly income, you’re going to have to look at other options.”
Leiz also suggested alternatives, such as a traditional savings account for more liquidity or a money market accountt for liquidity And high rates, although she warned that these are both variable interest rate options, so yields could fall if the Fed cuts rates. For those who owe money, on the other hand, she suggests that focusing on paying down debt may be the best solution.
“Paying off debt can be a smart choice, especially if the interest on your debt is higher than the savings rate. This will allow you to manage and reduce your debt more effectively,” she said.
The heart of the matter
Ultimately, you’ll need to consider your own goals and needs to make your choice, which is why D’Andrea suggests working with a financial advisor. You might find that long-term CDs are the right option for you to lock in October rates for years, or you might decide that another option is best given your goals.
