Missed Out on 5% CD Rates? Here's Why It Doesn't Matter

The Federal Reserve recently cut its benchmark interest rate for the first time since early 2020, and as you might expect, the interest rates paid by top financial institutions on high-yield savings accounts and CDs have trended downward as a result. Many savers could regret not locking in interest rates on CDs while they were at their highest level since the financial crisis.

However, it could still be a good time to put money into CDs, especially those with longer terms like 5-year CDs. While you might not get the absolute highest rates that have existed in the past year, that doesn't mean it's too late either. And there are two big reasons why you might still want to consider 5-year CDs for your money.

Two reasons why it isn't too late

To be perfectly clear, the peak of CD rates is likely behind us. The benchmark interest rates set by the Federal Reserve are a big factor that determines how much banks are willing to pay CD customers.

However, there are two big reasons why it isn't too late to put money in a 5-year CD today.

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Product	APY	Min. to Earn
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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 4.40% Rate info The annual percentage yield (APY) is accurate as of Jan. 2, 2025, 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.	4.40% Rate info The annual percentage yield (APY) is accurate as of Jan. 2, 2025, 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.

1. More rate cuts are on the way

First, the Federal Reserve's September rate cut was sharper than expected, but it was still just one step in what is likely to be a longer rate-cutting cycle. The target range for the federal funds rate declined from 5.25%-5.50% to 4.75%-5.00%. This is still a high benchmark rate in the context of recent history.

2. Long-term CDs are less reactive

Second, and more significantly, while all CDs are reactive to the Fed's rate moves, long-term CDs aren't nearly as reactive as shorter-term CDs. For example, in the roughly one week between the Fed's interest rate cut and the time of this writing, the yields paid on our top 1-year CDs have generally declined by about half a percentage point, in line with the Fed's move.

On the other hand, while benchmark rates certainly play a role in 5-year CD yields, their rates are more dependent on expectations for future interest rates. And expectations haven't really changed much. Financial markets were pricing in a total of about 2 percentage points of rate cuts by the end of 2025 prior to the Fed meeting, and the median expectation remains the same.

So, 5-year CD rates haven't changed as much as shorter-term CDs. The 5-year yields paid by the top online banks were in the 3.75%-4.00% range prior to the Fed's rate cut, and these rates are readily available now.

The bottom line

As the Fed continues to lower rates over the next year or two, it's likely that CD yields -- even 5-year CD yields -- will trend lower. However, it's likely to be a slower, gradual trajectory, and of a smaller magnitude than shorter-term CD yields. So far, the Fed has lowered rates by half a percentage point, and in many cases, 5-year CD interest rates have barely moved, if they've moved at all.

In short, if you want to lock in a strong interest rate for the next five years, it isn't too late just because the Fed has started to cut rates. It could certainly be in your best interest to act before any further interest rate cuts occur (the next Fed meeting occurs in early November), but you still have time.