Prediction: There's Only a Few Weeks Left to Lock in a 4.00% APY CD

A month ago, you could still find 5.00% APY certificates of deposit (CDs), though they were already becoming scarcer. Then, the Federal Reserve slashed the federal funds rate by half a percentage point on Sept. 18, and banks swiftly lowered their rates as well.

Now, the most competitive CDs offer close to 4.00% APY -- or even less on long-term CDs. And we're counting the days until the next rate cut. If you're interested in locking in a high CD rate, you only have a few weeks left to act.

How Fed rate cuts affect CDs

Fed rate cuts don't affect bank account rates directly. The federal funds rate is the interest rate banks charge each other when lending money overnight. It's a tool the Fed uses to help manage inflation, and it serves as a benchmark for what banks do with their own interest rates. 

Banks usually don't follow the federal funds rate in lockstep. When the Fed cut rates by half a percentage point last month, some banks reduced their rates by a little less than this and others a little more. But they always tend to move in the same direction. When the federal funds rate is rising, so are bank account rates, and when it's falling, bank account rates drop too.

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 January 4, 2025. 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 January 4, 2025. 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 4.40% 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.

You notice results most readily in savings accounts because these have variable interest rates. After a rate cut, you'll probably start to receive smaller interest payments that very month. But most CD owners won't notice changes right away.

CDs typically lock in your interest rate for the full CD term, which could be months or even years from now. If you already own a CD, you don't have to fear rate cuts reducing the interest you earn. You do have to worry about lower interest rates when your CD term ends, though. There are likely two more interest rate cuts coming this year -- one next month and another in December. 

Now's the time to lock in a high CD rate

The currently available CD rates are the best you'll find for the foreseeable future. Marcus by Goldman Sachs offers some particularly impressive rates right now, the highest being 4.10% on a one-year term. Take a few minutes to learn more about its CDs if you want to lock in a high CD rate while they're still available.

If you're concerned about limiting access to your funds, consider a CD laddering strategy. This is where you invest your money equally between CDs of different terms -- for example, a 1-, 2-, and 3-year CD. When one CD term ends, you can either use the money for something else or roll it into a new long-term CD, since these usually pay the highest rates.

The downside to this is that you have to meet the minimum deposit requirement -- as high as $2,500 with some banks -- for each CD. Those with smaller balances may have to choose just one CD to open. In that case, it depends on your risk tolerance and when you need access to your funds.

You don't want to put your money into a CD if you expect to need the cash before the term ends. Most CDs charge a penalty equal to several months of interest payments if you withdraw your funds early. So first think about how long you're comfortable locking your money away.

Long-term CDs will almost certainly pay you more in interest overall than short-term CDs in the current rate environment. But even if you secure a 4.00% APY for the next five years, that's probably a lot less than what you could earn if you invested your money in the stock market.

If you're comfortable taking on a little more risk and you don't plan to spend your money in the next five to seven years, you could benefit much more from opening a brokerage account. Fidelity is one of our favorites because it has so many $0 commission investment products. It’s also beginner-friendly and enables you to buy fractional shares, so you don’t need a lot of cash to get started. Give it a closer look if you’re interested in building a diversified portfolio at an affordable price.