Experts Warn: Check Your CD Rates Now Before Lower Rates Arrive

As interest rates are poised to decrease, savers should reassess their investment strategies sooner rather than later.

Certificates of deposit (CDs) have been particularly attractive in recent times due to a series of Federal Reserve interest rate hikes. Between March 2022 and July 2023, the Fed raised its benchmark short-term federal funds rate eleven times, reaching 5.25–5.5%, the highest in over two decades, in an effort to curb inflation.

However, with the Fed expected to lower rates after its policy meeting on September 18, financial institutions are likely to adjust their deposit rates accordingly.

“Should the Federal Reserve reduce interest rates, there are still steps savers can take to optimize their earnings by making timely decisions about their savings,” advised Mary Grace Roske, head of marketing for CD Valet, an online CD comparison site.

How Much Will CD Rates Drop?

You might have missed the peak rates available earlier this year. Banks have started reducing deposit rates in anticipation of a rate cut, according to Ken Tumin, a banking expert at DepositAccounts.com, which tracks and compares savings rates.

As of August 24, the average yield for a one-year online CD was 4.97%, down from a high of 5.35% in early January and 4.99% on July 24. Online rates are generally higher than those offered by traditional banks.

Rates are expected to continue declining if the Fed starts a series of rate cuts.

What Should CD Holders Do?

Although CD rates are down from their peaks, Americans can still secure a good return if they act quickly, Roske noted.

“Consider opting for a longer-term CD now, rather than the shorter terms advised earlier this year due to high rates,” she suggested.

Key Tips for Savers:

1. Act Promptly on Maturing CDs “Savers should stay vigilant about CDs approaching their maturity date,” Roske said. Avoid automatic rollovers, which might lock in lower rates. Nearly $950 billion in CDs are set to mature by mid-October, with a significant wave of maturities expected later, according to data from The Financial Brand.
2. Shop Beyond Major Banks Large financial institutions like JPMorgan Chase, Bank of America, Wells Fargo, and Citibank often offer below-market rates on CDs. Savers may find better yields online at smaller banks and credit unions.
3. Beware of Short-Term CD Pitfalls Short-term CDs with unconventional terms, like 5 or 9 months, may feature promotional rates that revert to less favorable ones.
4. Consider Alternatives to Money Market Funds With falling short-term interest rates, it may be beneficial to transfer funds from money market accounts into CDs to secure fixed-rate returns.
5. Negotiate Better Rates When renewing CDs at your current bank, you might be able to negotiate a higher rate, especially if you have a substantial deposit or a strong banking relationship. Not all institutions will negotiate, but it’s worth inquiring.
6. Explore CD Promotions Some institutions offer promotional rates to attract deposits. For example, Blue Coast FCU in Florida is running an 11-month, 4.5% APY CD with an additional 10 basis points if a chosen local football team wins. To participate, you need to be a member, invest between $1,000 and $25,000, and select a team to track.

By staying proactive and strategic, you can maximize your returns even as interest rates begin to fall.