Interest rates on certificates of deposits (CDs) increased substantially from 2022 to 2023—in lockstep with Federal Reserve rate hikes. Now, the national deposit rate for five-year CDs is 1.43%, up from less than 0.50% in June 2022. Yet many banks are offering rates well above that—the best five-year CDs have annual percentage yields (APYs) that exceed 4%, and some one-year CDs are offering APYs well above 5%.
CD rates rose thanks to the Fed's efforts to bring inflation down. However, as inflation has cooled off—from more than 9% in the summer of 2022 to under 3% now—the Fed has begun lowering interest rates once again. At the September 18 FOMC meeting, the Fed announced a 50 bps rate cut, with more cuts potentially following in November and December.
So, should you open a CD now or wait? With rates dropping, this is the time to buy, especially with more cuts likely to come.
What happens when the Fed raises rates
Interest rates are the Fed's number one tool for fighting inflation. It raises rates to cool consumer spending, which decreases demand for goods and services. Higher rates, on the other hand, reduce demand and inflation.
For example, rising rates send mortgage rates higher, making it more expensive to buy a home. Credit card annual percentage rates (APRs) also tend to increase, making it more expensive to carry a balance month to month.
Rising rates tamp down on consumer demand and increase borrowing costs for companies. This can, in turn, cause unemployment to soar as companies may resort to layoffs in response to declining revenue.
A look at CD rates since June 2022
Higher rates have big benefits for savers. Savings account and CD APYs tend to rise alongside the federal funds rate. If you're in a position to save in today's higher interest rate environment, investments, such as CDs, could help accelerate your savings.
CD rates have skyrocketed since 2022: One-year CD rates have increased more than twelvefold, with three-year and five-year CDs up nearly sixfold and fivefold, respectively.
You can expect CD rates to tick down slightly with the Fed’s most recent rate drop and continue to do so if expected cuts happen later this year. But rates are still well above their 2022 levels, and CD rates aren’t likely to drop dramatically anytime soon.
View this interactive chart on Fortune.com
Why it's probably time to buy a CD
Additional rate cuts are expected to come in November and December, and we at Fortune Recommends™ have already seen rates changing on a daily basis. Waiting to open a CD could mean missing out on some stellar rates.
Acting now means you may be able to lock in high rates on both short-term and long-term CDs before further cuts, and you can score some serious interest just by opting to deposit a larger lump sum into your CD.
What to consider before opening a CD
Before investing, shop around and compare the best CD rates offered at various banks and credit unions. It's possible you won't find the best rates at your current bank. Currently, short-term CDs, such as six-month and one-year CDs, offer higher rates than their longer-term counterparts.
The tables below show examples of top rates by term length. The notes column provides some of the qualifications needed to get a CD but contact the institution to receive the most up-to-date information. Rates are updated daily but are subject to change.
View this interactive chart on Fortune.com
Another strategy could be buying a one-year CD monthly and building a CD ladder. With a CD ladder, you can lock in some high APYs and stretch those top-notch yields a bit longer while having more liquidity.
The takeaway
Since inflation and the Fed rate remain high, now may be the time to put some money away into CDs, especially longer-term accounts, since their fixed APY won’t change even if interest rates are cut later this year.
