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Certificate of Deposit (CD) accounts. have been smart and effective ways to grow your money in recent years, thanks inflation and a higher rate climate. As a result, CD fees grew exponentially from where they were just a few years ago. Now, it is not difficult to find an account with a rate of 4% or more.
But CDs don’t work exactly like other savings vehicles.
Savers will have to commit to leaving their money in the account in full The term CD or risk paying one early withdrawal penalty for getting it out before maturity. And, there are multiple conditions to choose from, with SHORT those lasting less than 12 months and long term options that last many years. But with the next inflation report scheduled to be released on July 11 (detailing June’s inflation rate), some savers may be wondering which option is best for them now. For many, the answer is obvious. Below, we’ll explain why you should open a long-term CD before the July inflation report is released.
See how much more interest you can earn with a top long-term CD here.
Why you should open a long-term CD before the July inflation report
Here are three reasons why you should strongly consider opening a long-term CD before the next inflation report is released.
Fees are only slightly lower than short-term CDs
Of course, the fees on short-term CDs are slightly higher than long-term accounts now (a direct departure from historical trends). But the difference is negligible (generally less than a full percentage point). So it makes sense to take advantage now. You can potentially win HUNDREDS and even THOUSANDS dollars at the moment, depending on the amount you deposit and the fee you close. However, CD rates change frequently, so you should shop around and consider being proactive while these high rates are still available.
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Rates are likely to drop soon
As inflation continues to fall, a cut in the federal funds rate becomes more likely. And while those cuts may not come that often as many had predicted at the beginning of the year, there is likely to be at least one decrease before the end of 2024. When that comes, rates on savings vehicles like CDs will fall along with it. So don’t wait for that to happen. And remember that even a hint of an impending rate cut can reduce what lenders offer for these products, so there may be less time to take advantage of today’s high rates than it seems.
Your returns will be locked in – and predictable
CD rates, as mentioned, are locked in and will remain the same for the full term of the CD. This is a huge advantage at the moment in the face of lowering rates. No matter what rates drop over the long-term life of your CD account, you’ll still earn the high rate you opened the account with. These returns, unlike those with which they can be earned high yield variable rate savings accounts, will be both locked and predictable. In a fast-paced climate, this is a huge advantage when compared to other popular alternatives.
After all
While both short-term and long-term CDs are favorable to open now, there is a strong case to be made for going long-term as soon as possible, preferably before the next inflation report is released. . The fees on these accounts are still comparable to many alternatives (even if they are slightly lower). And given that these rates are locked in and that, if you wait, you can buy a CD in a lower-rate climate, it makes sense to lock in the long-term CD at the highest rate you can find now. Just be careful to only deposit an amount you’re comfortable parting with for the full term of the CD or you could end up paying an early withdrawal penalty to regain access to your funds.