3 Reasons to Open a CD in August

Look, I know there has been just so much talk about certificates of deposit over the last year, but it's for good reason. Between October 2009 and April 2022, CDs had horrendous yields. The 12-month CD, on average, yielded below 1%. You can earn more than that by financing lemonade stands in your neighborhood.

So, when CD rates started climbing into the 2%, 3%, 4%, and then into the 5% range, well, it was worth shouting from every rooftop. And those of us who work in the financial information industry -- well, we did what we do, we shouted and shouted and shouted.

Like them or not, CDs at rates in the 5% range are safe and profitable investment vehicles for the right investors, and we financial writers generally believe in getting in while the gettin' is good. For most of 2024, the gettin' has been super duper good for certificates of deposit. Here are three reasons to open a CD in August.

1. CDs force you to save

Interest rates aside, CDs have a super power that high-yield savings accounts simply can't summon: they force you to save. A HYSA may have a similar interest rate right now, but they rarely penalize you for not saving -- they simply don't pay interest on the money you've taken out to spend on penny candy at the corner store.

Our Picks for the Best High-Yield Savings Accounts of 2024

Product	APY	Min. to Earn
American Express® High Yield Savings Member FDIC. APY 3.80% Rate info 3.80% annual percentage yield as of December 28, 2024. Terms apply. Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	3.80% Rate info 3.80% annual percentage yield as of December 28, 2024. Terms apply.	$0	Open Account for American Express® High Yield Savings On American Express's Secure Website.
Capital One 360 Performance Savings Member FDIC. APY 3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.	$0	Open Account for Capital One 360 Performance Savings On Capital One's Secure Website.
Western Alliance Bank High-Yield Savings Premier Member FDIC. APY 4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. to earn $500 to open, $0.01 for max APY Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website. Member FDIC.	4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	$500 to open, $0.01 for max APY	Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website.

On the other hand, certificates of deposit force you to save. Well, force may be a strong word, but the penalties are very stiff, often amounting to several months' worth of interest, depending on the length of the CD, and you have to go to some effort to withdraw your CD money. All of this creates a sort of mental block about touching the sacred CD money under risk of extreme penalty and massive shame.

2. CDs offer a guaranteed and known payout at the end

I love a good high-yield savings account, a competitive money market account, and even dividend stocks, but there's one thing a CD can offer that none of these can: a guaranteed end result.

You could put your money into a HYSA today earning 5% interest and it could go to 3% in a month, or you could buy a dividend stock and find out that the dividends are being suspended due to financial woes.

But CDs? CDs are eternal -- for a while, anyway. If you buy a CD at 5% for 12 months, you know without any question that your $10,000 will be $10,511.62 at the end. There are few other financial instruments that can make such a promise, and none with payouts that are FDIC insured. No matter what, short of a zombie apocalypse, your $10,000 will come back to you with friends.

3. There is a strong chance of a Fed rate cut in September

I know it's been talked about most of the year, but at the last meeting of the Federal Reserve Board, Jerome Powell, my hero and yours, made it clear that a rate cut was on the table for September. Not that it was a guarantee, mind you, but he acknowledged that the possibility finally existed, which is what everyone has been waiting to hear.

Earlier in the year, we were told at least one cut was due this year, and it would be toward the end. Now it's almost September and a ton of financial experts think that's when it'll happen.

How much the total rate cut will be is wholly unknown, though speculation of as much as 0.50% before the year ends has been tossed around. Although it might not seem like a lot, the difference to your CD is nothing to laugh about. This may well be your last chance to get a 5% 12-month CD, or better yet, a 4.50% 60-month CD.

That's a lot of lost interest (read that "free money") if you wait to secure a CD on the other side of that rate cut.

Socking extra cash away in a CD is a smart move in August

Regardless of your personal reasons, stashing your excess cash in a CD in August is a smart move, as long as you shop around for the best CD rates available. There's absolutely no reason to not take advantage of high CD interest rates while they last, and ride that adrenaline rush as far as you can go.