Do not wait. Experts say you should lock in a long-term CD soon

After almost a year in which banks offered record high annual rates of return, we are starting to see slight declines in interest rates on savings and CDs.

“Banks are cutting interest rates on CDs and savings primarily due to expectations of lower Fed rates over the medium to long term,” said Baruch Silverman, banking expert and CEO of The Smart Investor.

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

The best savings rates this week

This week, the average savings rate increased from 0.37 percent to 0.39 percent from March to April, according to the Federal Deposit Insurance Corporation. The FDIC average is usually lower than the best savings account rates because that number includes national banks with rates as low as 0.01% APY. You’ll often find better rates at online banks that 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 for the best savings accounts we track at CNET is 3.81% APY. The average was down 0.58% from last week’s average of 4.39%.

Here are this week’s best savings rates:

Prices as of April 20, 2023.

This week’s best CD prices

This week, the average of six-month, one-year, and five-year CDs rose slightly for the banks we track at CNET. But the average for three-year CDs remains the same. Some banks raised their rates on short-term CDs, including Goldman Sachs’ Marcus, TIAA Bank and Forbright. On the other hand, CFG Bank cut 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 prices will rise. But now that is changing.

Interest rates are currently experiencing an inverted yield curve, meaning that short-term CD rates are higher than long-term CDs. In a normal rate environment, long-term CDs have higher average rates than short-term CDs. With pundits torn over whether the Federal Reserve will raise rates another 0.25% or stop raising rates, we may have reached a tipping point for savings rates.

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

However, if you lock in a solid three- or five-year rate now, there’s a chance the Fed will continue to raise rates, echoed Carrie Carbonaro, a certified financial planner and director of women and wealth at Advisors Capital Management. “We don’t know 100% that they will continue to grow. They may stop, and when the economy gets hit hard enough, they’ll be cut again.” If rates continue to rise, 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 hide the savings right now

With the Fed likely to hold off on raising interest rates for the first time since March 2022, experts don’t expect savings rates to rise much further. Ultimately, where you stash your savings comes 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 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 an Apple Card.

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

You’ll earn solid returns and access the money when you need it without paying an early withdrawal penalty like you would with CDs. But most high-yield savings accounts still lag behind other options in terms of the interest they pay, Carey said. And some banks are also quietly starting to cut those rates.

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. This is 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.

Special CDs

If you’re not sure about interest rates or liquidity, consider specialty CDs, such as a bid CD or a non-penalty CD. However, these options tend to have lower APYs than traditional CDs. “You can sacrifice some potential profits for flexibility,” Carey said.

More importantly, now is the time to save. Every penny can add up, and interest-bearing savings accounts can get you closer to your savings goals before interest rates drop even further. With experts predicting that rates will remain stable for some time, it’s best to open an account now to start earning interest before it’s too late.

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