The upcoming January Fed meeting, the first of the year, has sparked speculation about whether rates will hold steady or decrease further. With savings rates hanging in the balance, many are watching closely to see what the Fed decides.
If you’ve waited to open a CD account until now, or if your current CD account is nearing maturity, you’re likely considering locking in rates ahead of the next meeting. But what CD should you open before the conclusion of the Fed meeting — a short-term or long-term account?
Over the last several years, there’s been a surge in the popularity of CD accounts driven by rapidly rising rates in response to the Fed's interest rate hiking campaign. These increases followed a series of rate hikes in 2022 and 2023, which pushed the federal funds rate to its highest level since 2001.
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However, the market started to course correct in 2024. The Federal Reserve cut interest rates three times to close out 2024, but they anticipate fewer rate cuts in 2025.
With so much uncertainty, consumers are looking for ways to keep their savings strong for as long as they can. For many, this means turning to longer-term CDs.
The number of savers shopping for 2-year CDs on online marketplace CD Valet increased 110% in August, the company reported, while the number looking for 4-year to 5-year CDs increased 100%. "As interest rates shift, savers must stay informed and proactive," says John Blizzard, Founder of CD Valet.
Should you get a long or short-term CD before the next Fed meeting?
When comparing current CD rates, you’ll notice that the best rates offered currently are mainly on short-term CDs. However, opening a long-term CD may be more prudent at this time. Opening a longer-term CD can be an easy way to maximize the amount of interest earned on your savings, because of course, the longer you keep your money in a CD, the more interest you’ll earn.
When the Fed raises or lowers interest rates, savings rates usually do the same — which is why rates rose substantially following the Fed’s rate-hiking campaign. But as inflation cooled and the Fed kept interest rates steady, rates on savings accounts inched slightly down. Rates could drop even more if the Fed cuts rates over the next couple of years.
So, locking in high rates for as long as possible can be a smart savings strategy, but there’s one main factor to consider. When putting money in a CD account, you’ll have to be prepared to “set it and forget it.” That means not accessing the cash until the CD matures, which can prove challenging if your cash is tied up for several years. If you do withdraw funds early, you’ll be charged a fee that can offset any interest earned.
But if you’re OK with setting aside a chunk of change for a longer-term CD, it’ll pay off. (We recommend building a solid emergency fund before you consider putting aside any cash in a CD.) If you’re comfortable with a long-term time commitment, a 5-year CD is a solid option, with some of the top earning accounts offering over 4% APY. While many 1-year CDs have rates even higher — over 4% — locking in a slightly lower rate will pay off in the long run.
Putting $5,000 in a 1-year CD with a rate of 4.25% will earn you $212.50 in interest. If you want to open another CD once that one matures, you’ll have to settle for a much lower rate. On the other hand, if you lock in a rate of 3.75% for a five-year CD, you’d maintain that savings rate for the whole five years, earning $937.50.
If you can’t commit to a long-term CD, however, it’s still worth opening a short-term one. You just won’t be able to take advantage of high rates for as long. But it will still help you earn some extra cash without tying up your money for an extended time. It's also worth opening a high-yield savings account, although these accounts won't allow you to lock in rates.
Use our tool, powered by Bankrate, to compare CDs today:
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