The Federal Reserve recently cut its benchmark interest rate for the first time since early 2020, so it might seem as if the window of opportunity to take advantage of the highest CD and savings account rates since the mid-2000s might be over. But that’s simply not the case.
This was just the first Fed rate cut after a long series of rate increases, and you can still open high-yield CDs with top-rated online banks. If you’re looking to lock in today’s CD yields before the Fed cuts rates any further, check out our list of the best CD rates today.
The Federal Reserve and CD interest rates
To be perfectly clear, there is no direct relationship between CD rates and the Federal Reserve’s rate movements. In other words, there’s no rule that says a bank has to lower its CD yields if the Fed decides to cut its rate.
Having said that, they do tend to move in the same direction over time. The Fed’s rate cuts make banks’ borrowing costs lower, and this generally means banks are willing to pay less for deposits like CDs.
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Short-term CDs tend to be the most sensitive to the Fed’s interest rate decisions, while long-term CD yields tend to move more gradually. The simplified explanation is that shorter-term CDs are largely based on the current interest rate environment, while longer-term CDs mainly get their yields from expectations for interest rates throughout the term.
This is why 5-year CDs generally have lower yields than 1-year CDs right now — the expectation is that interest rates are going to continue to fall over the next few years.
You can still open a high-yield CD
We’ve certainly seen some CD yields come down, but they really haven’t dropped as much as you might expect. As of this writing, 9-month CDs with yields of 4.35% or higher are still available from some well-known and top-rated banks, and on the longer-term end of the spectrum, 5-year CD yields of 3.50% or more are rather easy to find.
It’s also worth noting that if you’re willing to use the absolute highest-paying banks, CD rates have barely budged since the Fed’s rate cut. To be sure, the highest-paying CDs might not be the most convenient to open and manage.
For example, some have higher minimum deposits and/or have limited ways to deposit and withdraw money. But if your priority is maximizing yield, you can still find yields that are much higher than were available just a few years ago.
The bottom line
CD rates were at their highest level in years before the Fed decided to lower interest rates in September, and while their yields have fallen, they are still much higher than they were a few years ago. However, it’s important to keep in mind that the Fed is widely expected to keep lowering interest rates in a series of reductions lasting for at least another year.
If it does, it’s likely that we’ll see CD yields gradually head lower, so if you have cash in a savings or money market account you aren’t likely to need anytime soon, now could be a great time to consider a CD.
