I'm a firm believer that money you're not using right away should be put to work. Why let it waste away in a checking account earning nothing when you could invest your money instead?
But let's be real -- not everyone has the stomach for investing. And if you're looking to earn a nice return on your money to meet a goal that's five years away or less, then investing isn't even a great option, because that's not enough time to ride out stock market downturns.
That's why I happen to be a big fan of CDs right now. With rates sitting at or even slightly above 5.00%, it's hard to pass up the opportunity to score a risk-free return that high.
But 5.00% CDs aren't going to stick around forever. And today's CD rates may start to shrink sooner than expected.
Our Picks for the Best High-Yield Savings Accounts of 2024
SoFi Checking and Savings
APY up to 4.60% Rate infoYou can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet. Min. to earn $0 Open Account for SoFi Checking and Savings Member FDIC. | APY up to 4.60% Rate infoYou can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet. | Min. to earn $0 |
Synchrony Bank High Yield Savings
APY 4.75% Rate infoOur Disclosure: Annual Percentage Yields (APY) is subject to change at any time without notice. Offer applies to personal accounts only. Fees may reduce earnings. For High Yield Savings accounts, the rate may change after the account is opened. Visit synchronybank.com for current rates, terms and account requirements. Member FDIC Min. to earn $0 Open Account for Synchrony Bank High Yield Savings Member FDIC. | APY 4.75% Rate infoOur Disclosure: Annual Percentage Yields (APY) is subject to change at any time without notice. Offer applies to personal accounts only. Fees may reduce earnings. For High Yield Savings accounts, the rate may change after the account is opened. Visit synchronybank.com for current rates, terms and account requirements. Member FDIC | Min. to earn $0 |
Capital One 360 Performance Savings
APY 4.25% Rate infoSee Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY)is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings Member FDIC. | APY 4.25% Rate infoSee Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY)is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. | Min. to earn $0 |
I'd highly recommend acting soon if you want to score a great rate on your money. You may even want to open your next CD as soon as today.
Why it pays to open a CD soon
The reason CD rates are so high these days is because the Federal Reserve raised interest rates numerous times in 2022 and 2023 as part of its inflation-slowing efforts. But since inflation isn't as problematic as it was a couple of years ago, the Fed is ready to reverse course and start cutting interest rates.
Now, we don't know exactly when the Fed's first rate cut will be. But the central bank is set to meet on June 11-12. If it decides to introduce its first rate cut in June, CD rates might fall shortly after.
This doesn't mean that top CD rates will fall from 5.00%, where they are today, to 3.50% overnight. But let's say they only fall by 25 basis points (0.25%). Would you rather lock in a 5.00% CD, or one at 4.75%?
Believe it or not, waiting a few extra weeks to open your next CD could spell that very difference. That's why I'd say that if you have the money available today, strongly consider locking in a CD today. Waiting means taking a risk.
What CD term is right for you?
If you want the absolute highest CD rate today, then you'll probably find that most banks are offering the best rate for 12-month terms and smaller. But a longer-term CD could make more financial sense if it aligns with your goals.
As an example, right now, one bank is offering 12-month CDs at 5.00% and 36-month CDs at 4.00%. Clearly, you'll make more money your first year with the 12-month term. But if you think you might end up keeping money in a CD for three years, then you may want a 36-month CD from the start.
If you deposit $10,000 into a 36-month CD at 4.00% APY, you'll make $1,249 in three years. With a 12-month CD at 5.00% APY, you'll make $500 your first year. After that, who knows?
If 12-month CD rates fall to 3.75% after a year, you'll earn about $394 your second year of opening a 12-month CD. If rates fall to 2.75% the next year, you'll earn about $300. All told, that's a total of $1,194 in interest -- less than the $1,249 you can get by choosing a 36-month CD from the start.
That said, it's not always easy to see into the future and commit to a longer-term CD. So if that doesn't work for you, there's nothing wrong with sticking to a 12-month term. But open that CD now so you don't miss out on 5.00% APYs while they're still available.
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