Don’t Wait. Experts Say You Should Lock in a Long-Term CD Soon

After nearly a year of banks offering record-high annual percentage yields, we’re starting to see slight dips in savings and CD interest rates. 

“Banks are reducing interest rates on CDs and savings primarily due to predictions of lower Fed rates in the medium to long term,” said Baruch Silvermann, a banking expert and CEO of The Smart Investor. 

With few banks raising rates ahead of the May 2 to 3 Federal Open Market Committee meeting, many experts say now’s the time to consider long-term CDs before rates drop even further in the next couple of weeks. Where does this leave high-yield savings accounts and money market accounts? We’ll break down the latest savings and CD rates and explore a few other interest-earning savings options. 

The best savings rates this week 

This week, the average savings rate increased from 0.37% to 0.39% from March to April, according to the Federal Deposit Insurance Corporation. The FDIC average is typically lower than the best savings account rates, because this number includes national banks with rates as low as 0.01% APY. You’ll often find better rates at online banks which don’t have the large overhead costs of maintaining physical branches — this often translates into savings in the form of higher APYs.

The current average across the top savings accounts we track at CNET is 3.81% APY. The average has decreased by 0.58% from last week’s average of 4.39%. 

Here are the best savings rates for this week:

Rates as of Apr 20, 2023. 

The best CD rates this week

This week the average for six-month, one- and five-year CDs increased slightly for banks we track at CNET. But the average for three-year CDs remained the same. Some banks increased their rates on short-term CDs, including Marcus by Goldman Sachs, TIAA Bank and Forbright. On the other hand, CFG Bank decreased its one-year CD APY by 0.10% while rates for other banks remained the same.

Rates as of April 24, 2023. 

Rates as of April 24, 2023. 

Rates as of April 24, 2023

Rates as of April 24, 2023. 

Rates as of April 24, 2023. 

It’s time to start locking in a long-term CD

Over the past year, experts have advised against locking in long-term CDs with the caution that rates will go up. But now that’s changing. 

Right now, rates are experiencing an inverted yield curve, meaning short-term CD rates are higher than longer term CDs. In a normal rate environment, long-term CDs have higher average rates than short-term CDs. With experts torn on whether the Federal Reserve will raise rates by another 0.25% or pause on rate hikes, we may have reached the tipping point for savings rates.

“If you save for the long term and don’t need the money soon, it may be the right time to lock your rate for long-term CDs, such as for one to three years, depending on your needs,” said Silvermann. “The interest rate you can get is still high, around 4 to 5% APY.” Considering the possibility of a recession and likelihood that inflation will continue decreasing, he added that we may not see rates this high six months from now. 

However, if you lock in a solid three- or five-year CD rate now, there’s a chance that the Fed continues to raise rates, echoed Cary Carbonaro, a certified financial planner and Director of the Women and Wealth Division at Advisors Capital Management. “We don’t 100% know they are going to keep rising. They may stop, and when the economy is hit hard enough, they will be cut again.” If rates continue to go up, but you lock in a long-term APY now, you could miss out on a better rate. If you’re interested in a long-term CD, we recommend comparing options now, and waiting to see what the Fed decides next week before making any moves.

Where else to stash savings right now 

With the possibility of the Fed pausing rate hikes for the first time since March 2022, experts don’t expect savings rates to climb much higher. Ultimately, where you stash your savings boils down to your needs. Here are a few options to consider.

High-yield savings accounts

If you’re worried about job security as experts predict a recession, having money on hand in a high-yield savings account is important for emergencies. And you can still earn high APYs right now. Especially since Apple announced its high-yield savings account option if you have the Apple Card. 

“High-yield savings accounts offer attractive yields, with some online banks offering APYs over 4.5%,” said Chelsea Ransom-Cooper, financial planning director at Zenith Wealth Partners. 

You’ll earn a solid return and access the money when needed without paying an early withdrawal penalty as you would with CDs. But most high-yield savings accounts are still lagging behind other options in the interest they pay, said Carey. And some banks are starting to quietly lower these rates, too. 

Money market accounts

Liquid or flexible options, including a money market account, are worth considering. Some MMA rates are higher than high-yield savings and offer more flexibility. It’s a low-risk, FDIC-insured savings option of up to $250,000 per person, per account type. You can withdraw and deposit funds and make regular transactions as you would with a checking account. Carey added that the higher your balance, the higher your APY for some banks.

Specialty CDs

If you’re unsure about rates or liquidity, consider specialty CDs such as a bump-up or no penalty CD. However, these options tend to have lower APYs compared to traditional CDs. “You may sacrifice some potential earnings for the flexibility,” said Carey. 

More importantly, now’s the time to save. Every penny can add up, and interest-earning deposit accounts can push you closer to your savings goals before rates drop even further. Since experts predict that rates will remain steady for a while, it’s best to open an account now to start earning interest before it’s too late. 

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