3 CD account questions to ask after this week’s Fed meeting

Just under 99%. Those are the chances that the Federal Reserve will keep interest rates paused when it meets again this week in its first meeting since late April. The chances of a rate cut, according to the CME Group’s FedWatch tool, are currently just over 1%. In other words, expect more of the same when the central bank meets on June 16 and June 17, even with a new chairman now in charge. And while that may not be the development millions of borrowers hoping for lower rates were hoping for, it will continue to sustain savers who have become accustomed to earning big returns on their money in recent years. 

One of the more profitable and consistent ways to take advantage of the high-rate climate has been with a certificate of deposit (CD) account. This account type comes with elevated, fixed interest rates, many of which sit over 4% now, depending on the term. And they have the potential to increase even further depending on what actually happens at this week’s Fed meeting, as well as what’s discussed by officials once it concludes. Against this backdrop, then, prospective CD account holders as well as those with an account set to mature this month, should start contemplating their next moves. That starts with coming up with answers to the three specific questions we’ve outlined below.

Start by seeing how much interest you could earn with a high-rate CD account here.

3 CD account questions to ask after this week’s Fed meeting

To boost their chances of CD account success, savers should start by at least thinking through the answers to the following questions after this week’s Fed meeting concludes on Wednesday:

Is waiting around for a higher CD interest rate worth it?

A combination of strong employment and surging inflation can potentially lead to an interest rate hike, though that’s far from certain now as both drivers can rise or fall, potentially before the central bank even meets again. Waiting, then, for a higher CD interest rate that will only present itself following an interest rate hike is likely not the best move. 

And even if that were to occur, the rate differential is likely to be marginal. Savers will also lose out on the interest they would have otherwise been accumulating if they had acted sooner. Carefully consider the merits of waiting around for a higher CD interest rate, then, as it may seem more beneficial than it really is now.

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Which CD term makes the most sense to open?

Most CD interest rates sit over 4% now, with just 3-month options around 3.95%. So there are still plenty of profitable options to choose from. The question, then, revolves around which CD term makes the most sense to open, and that will largely depend on your interpretation of Fed rate policy and the fight against inflation. 

If you think rates will rise later this year and want to be positioned to take advantage when the Fed formally hikes them, then a CD account with a term of three or six months may make sense. But if you feel confident that rates will eventually decline, perhaps even in the next few months, then a long-term CD that will allow you to continue to earn a high rate even when the climate cools may be more advantageous. 

Consider the answer to this question carefully, however, as you don’t want to get locked into a CD account that you then have to withdraw from early, as a penalty will need to be paid, potentially bringing you right back to where you started your savings journey.

Should I split my funds among different account types?

A CD account isn’t the only savings vehicle that can be impacted by Fed rate policy. High-yield savings and money market accounts can, too, and unlike a CD, neither will limit your accessibility or force you to keep your funds at a certain level to earn one of today’s competitive rates. It’s worth considering, then, the pros and cons of splitting your funds among different account types.

This could mean a CD and a high-yield savings account, a CD and a money market account or maybe even all three. There is no uniform guidance here, but it’s certainly worth contemplating now, especially if today’s higher rates look to be holding on for a bit longer.

The bottom line

A continued pause in Federal Reserve interest rate policy should lead to a brief pause for savers, too, as they reflect on their savings strategies in this environment. By thinking through the answers to these specific CD account questions now, they’ll be better positioned for their next steps, whether that be with a new CD, a new high-yield savings account, a new money market account or some combination of the three.