Is Time Running Out to Lock in a CD Yielding 5% or More?

A certificate of deposit (CD) is one of the safest places to store your money. Deposits up to $250,000 per depositor per institution per account are federally insured, meaning that even if the financial institution folds, you'd still get your money back. And with some of the best CD rates currently above 5%, you can score some serious returns on your savings.

But those high yields probably won't last forever. If you're hoping to lock in a CD with an APY of 5% or more, you may not want to wait much longer.

Are CD rates about to drop?

The Federal Reserve Board is tasked with setting the federal funds rate, which is what banks charge one another for overnight loans. Though the Federal Reserve doesn't directly set the interest rates you earn when you deposit money (or the interest you pay on a loan), the benchmark rate determines how much banks pay to borrow money.

The Fed typically increases rates when it wants to tamp down on inflation, but cuts rates when it wants to stimulate economic growth.

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.

Amid signs that inflation is slowing, along with a weak July jobs report, there's been a lot of speculation that the Fed could soon cut interest rates. In fact, Federal Reserve Board Chairman Jerome Powell said after the board's latest meeting that "a reduction in our policy rate could be on the table" when the Fed next meets Sept. 17–18 if inflation continues to cool.

If the federal funds rate drops, eventually you can expect lower interest rates if you borrow money. But you'll also earn less interest on CDs and high-yield savings accounts. If the federal funds rate rises, taking out a loan tends to get more expensive. But you'll often get a better yield on your savings.

What CDs pay the best rates?

Usually, CDs pay higher rates for longer terms. In other words, you'd normally expect a 5-year CD to have a higher yield than a 6-month CD.

But that's not the case right now. We currently have an inverted yield curve, meaning that short-term CDs – specifically those with maturities of six to 12 months – are paying higher yields than longer-term CDs. Because interest rates remain at a 23-year high, financial institutions aren't willing to commit to paying high interest rates for several years because they're predicting interest rates will drop sooner rather than later.

Essentially, even if you do lock in a CD yielding 5% or more, you're probably only going to get that rate for six months to a year. If you want to secure a guaranteed rate for a longer stretch of time, you'll likely have to sacrifice some on yield.

Should you choose a CD or high-yield savings account?

A big advantage of CDs vs. savings accounts is that you lock in an interest rate until the CD matures. APYs on a high-yield savings account can change at any time.

That can be a major drawback for high-yield savings accounts if you think interest rates will drop. But CDs have lost a bit of their edge lately since top rates are available mostly for the short term.

With a CD, you're effectively locking up your savings until the maturity date. You could pay a hefty early withdrawal penalty fee if you touch your funds before then. If you're looking for a place to park your emergency fund or money you might need in the next few months, a high-yield savings account is the safer option.

But if you can afford to part with your money for at least several months, consider a high-yield CD to take advantage of high interest rates while they last.