Certificates of deposit, or CDs, offer the same principal protection as a savings account but often at higher rates. When you buy a CD, you promise to leave your money at a bank for a set term. In return, the bank pays a higher interest rate. The best CD rates right now are above 5%.
CD rates track the federal funds rate—the interest rate commercial banks charge each other to borrow money. When the Federal Reserve raises the federal funds rate, banks raise the interest rates on CDs to attract more depositors. With the Fed's recent rate drop, banks will begin to lower the interest rates on CDs. As banks make these adjustments, the window to lock in higher CD rates will narrow, so act now if a CD fits into your investment strategy.
