Why It's a Great Time to Lock in a CD Rate Right Now

Despite uncertainty in the market, CDs could offer a safe bet for your money.

happy african american woman counting money in bank window with male cashier inside the cabin
Updated May 28, 2024
Fact checked

We receive compensation from the products and services mentioned in this story, but the opinions are the author's own. Compensation may impact where offers appear. We have not included all available products or offers. Learn more about how we make money and our editorial policies.

Interest rates continue to rise as inflation is hurting everyone’s wallet. But there is one investment that is benefitting from the massive rate increases.

Certificates of deposits (CDs) are a fixed-income investment that pay a fixed rate of return over a specified period of time. Deposited funds are locked in for up to 10 years and earn interest on a regular basis. 

While some CDs are offering 5% returns, is now the time to lock in the rate and open a CD to boost your bank account?

CD interest rates are currently attractive

Rido/Adobe happy mature couple sitting on table with male finance advisor discussing budget for making investments

Right now, CDs are offering up to 5% APY (or more) due to the Federal Reserve’s actions to fight inflation. 

This is the highest CDs have been in over 20 years, making CDs a decent option for fixed-income investing. You can also lock in CD rates for up to 10 years even if they fall in the future.

Want to learn how to build wealth like the 1%? Sign up for Worthy to get ideas and advice delivered to your inbox.

CD rates could decline later this year

Wesley JvR/peopleimages.com/Adobe african american female accountant sitting in front of desktop computer working late at night

The Fed raised interest rates throughout 2022 and into 2023 to help lower inflation. But with inflation year-over-year rates dropping quickly, the Fed may stop raising rates, and might even pivot to lower interest rates by the end of the year. 

This means CD rates would start declining again, and locking in a CD now can get you some of the highest rates available.

CDs pay more than many other types of low-risk investments

LIGHTFIELD STUDIOS/Adobe happy senior couple counting money while writing on notepad

There are several fixed-income and lower-risk investments available, but many of them don’t offer the same return as a CD. 

High-yield savings accounts, bonds, and even U.S. Treasuries offer higher yields than traditional savings, but some CDs are paying higher rates than those investments. 

And CDs are just as safe, as they are FDIC insured and typically held by regulated financial institutions.

CDs can provide stability in a volatile market

Jeff Bergen/peopleimages.com/Adobe happy couple using laptop together to finalize budget at home

With high rates and the ability to lock in terms up to five or 10 years in length, CDs allow you to own a stable investment, no matter what the stock market is doing. 

With massive moves by the Fed over the last few years, the market has become much more volatile, with some stocks dropping 20% (or more) in a single day. CDs avoid volatility and provide stable returns.

CDs provide predictable returns

Nicholas Felix/peopleimages.com/Adobe senior lady sitting on chair using smartphone while smiling at young woman

CDs offer a fixed rate of return over a specified period of time. These returns don’t change over the course of the term, and you know exactly how much you will earn before investing. 

And CDs compound over time, with earnings increasing your principal investment periodically, allowing you to earn even more.

CDs are easily available at major banks

TommyStockProject/Adobe senior couple reviewing papers about medical insurance

CDs are available at most major banks, as well as online. If you're a member of a national bank, you can typically choose between several CD products and term lengths. 

This makes them a very accessible investment that may not require you to sign up for another bank or invest in a financial firm.

CDs offer a wide selection of terms

C D/peopleimages.com/Adobe african american man talking to female colleague in offcie

There are multiple term lengths available for CDs, ranging from one month up to 10 years in length. 

This allows you to control how long your money is locked up, and you can even sign up for several different CD term lengths for different financial goals. 

It’s best to choose a term that is long enough to get the best rate, but only as long as you're comfortable with locking away those funds.

CDs lock your funds away so you can’t overspend

baranq/Adobe beautiful woman sitting at home reveiwing bills and writing on a paper

CDs offer a form of financial accountability, as most don’t allow you to access your funds early without paying a penalty. 

This can help you avoid the temptation of spending available cash, and instead, CDs offer terms that keep your funds secure (and invested) while you don’t need access to them.

CDs are offering high rates for shorter terms

wichayada/Adobe colleagues calculating monthly budget

Typically, the longer the term length, the higher the CD rates. 

In a low-rate environment, or when rates are decreasing, locking in a long-term CD will pay you more. But right now, CDs are actually offering higher rates for shorter-term CDs as the Fed has increased rates at a historic pace. 

If you want the highest rates, you can lock up funds in one- or two-year CDs instead of a five- or 10-year CD.

CDs can be opened quickly online

mavoimages/Adobe happy man sitting cozily in couch using laptop at home

CDs are available online, and you can open an account and deposit funds entirely online or through your bank’s mobile app. This makes it a quick and convenient way to invest. 

And online-only banks may offer better rates than traditional brick-and-mortar banks, giving you extra incentive to sign up online.

Some CDs offer low minimum deposits

Syda Productions/Adobe woman receiving money from accountant in bank

While many CDs require a hefty upfront investment to open, some are offering high rates with very low account minimums. Many accounts can be opened with just $1,000, and some are even as low as $500.

Rate Bump CDs might pay higher rates in the future

F8 \ Suport Ukraine/Adobe young man sitting at table using laptop while writing on paper

With interest rates increasing, Rate Bump CDs have become a popular way to invest. These CDs offer traditional term lengths but with the ability to increase your interest rate without withdrawing your funds. 

If the overall interest rate increases for a bank’s CDs, a Rate Bump CD gives you the option to lock in that new (higher) rate without any additional fees. This can help you lock in a great rate now and take advantage of future rate increases.

Some CDs don’t charge an early withdrawal penalty

hedgehog94/Adobe man receiving money from bank window by female accountant

While CDs are known for locking up your funds for a fixed period of time, some banks offer “No-Penalty CDs,” giving you access to your funds whenever you want without any fees or penalties. 

This is a more flexible way to invest in a CD, especially if you might need the cash before the term ends. The downside of No-Penalty CDs is the interest rates tend to be lower than a traditional CD.

CDs can be used for retirement savings

Andrey Popov/Adobe retirement plan on book

Did you know you can invest in a CD within your retirement accounts? Most traditional investment brokers that offer IRA accounts have a CD option, allowing you to earn a fixed interest rate while saving on taxes at the same time. 

You can invest in a CD with a Roth IRA to save on taxes later, or in a traditional IRA to save on taxes now.

A CD ladder can lock in high returns, even if rates go down

Artofinnovation/Adobe man sitting on chair looking at multiple screens for reveiwing stocks

If you want to lock in the high CD rates right now and enjoy those high rates later as well, you can create a CD ladder. 

The way it works is to deposit funds into several CDs with varying term lengths, and as the shorter-term CDs mature, you can roll them into a longer-term CD, or use the funds as income. 

If rates start to decrease, your longer-term CDs have locked in a high rate that may no longer be offered.

Bottom line

M+Isolation+Photo/Adobe woman reviewing papers on clipboard while using laptop on table

Thanks to high inflation and the Fed raising rates at a historic pace, CDs are cool again. With the ability to lock in 5% guaranteed returns and multiple term lengths to choose from, it’s one of the best ways to grow your wealth in today's volatile market. 

And you can invest in several to create a short- and long-term investment strategy that keeps the high rates locked in.

CDs are a solid investment option, just make sure you understand the terms and potential penalties to access funds early. 

You could forfeit all the interest you earn, or end up paying a fee, so don’t lock up money that you might need access to. And make sure your bank is FDIC insured.

Safe and secure way to grow your savings
Terms from 1 - 5 years
FDIC insured