Will CDs Still Be Worth It After the Fed Cuts Rates?
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Most experts are pretty sure the Fed will cut rates in September so long as the August inflation report (formally known as the Consumer Price Index report) continues to show inflation slowing down.Should the expected cut happen, there's a good chance interest rates on a whole range of products will also go down. This includes the high CD rates we've been recently enjoying.Does that mean that we should all be jumping ship on CDs? Not yet.September cut likely to be just 0.25%At their most optimistic, the talking heads opined on half-point cuts this summer. Now, the general consensus is that if a cut happens, it will be no more than 0.25%.(Quick jargon guide: A quarter of a percentage point = 25 basis points = 0.25%.)The current federal funds rate is 5.33% so, relatively speaking, a quarter-point cut isn't huge. You're still likely to find plenty of competitive short-term CDs offering APYs over 5.00% after the Fed cuts rates in September.More cuts are likely to comePerhaps more important than the well-prophesied September rate cut is the fact that it's not the only one experts are sure is on the horizon. Many people expect this to be merely the first in a series of cuts.Should they be right -- and, to my knowledge, the Fed hasn't ruled out making multiple cuts this year -- rates could be down 0.75% (according to the optimists), or even a full point (according to the people who probably have a little too much optimism).If these sorts of cuts continue as imagined, then we could see the end of the 5.00%-and-up CD rates for a while.Should you lock in long-term CD rates now?So, we get down to the question: If all these cuts are coming, should you lock in today's rates with a long-term CD?Well, let's put it this way: CD rates aren't getting higher, friends.In my opinion, if you have some savings you won't need to touch for the next few years, and you want a pretty low-risk way to invest it, then yes, now would be a great time to get a long-term CD with a competitive APY.Short-term CDs remain a good optionThe great thing about long-term CDs is you lock in your rates for up to five years (and sometimes even longer). The bad thing is that your money is locked in, too.Most CDs have expensive penalties for withdrawing your money early, so you could actually wind up earning less overall if you need your money before the CD matures. Don't let the fear of rates dropping make you invest in a longer term than you know you can manageBesides potential penalties, most long-term CDs have lower rates than short-term CDs. So strategic investments in short-term CDs with competitive rates could wind up being the better bet, even if overall rates go down.The upside to lower ratesIf you're a potential home buyer lamenting lower rates on CDs, consider this: Lower rates also mean mortgages get cheaper. (And auto loans, business loans, and credit card debt.) So it's not all rain on your parade!Alert: highest cash back card we've seen now has 0% intro APR until nearly 2026
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