Why CD Investors Are in a Lose-Lose Situation Right Now

Certificate of deposit (CD) investors have been benefiting from record high rates throughout 2024, and they’ve had an amazing opportunity to invest in CDs and earn returns of around 5.00% or higher. This is unprecedented in the modern era.

Unfortunately, while they may have had a great run, those who like to invest in certificates of deposit are actually facing a lose-lose situation right now. Here’s why.

Bad news for CD investors

CD investors are in a bad situation right now because one of two things is inevitably going to happen:

  • CD rates are going to fall if the Federal Reserve lowers interest rates.
  • CD rates will increase or stay stable if the Federal Reserve keeps rates where they are or raises them — which is likely to happen only if inflation stays at current levels or increases.

The Federal Reserve has repeatedly indicated that it wants to cut interest rates, with the central bank targeting at least one rate cut in 2024 and several cuts in 2025.

Our Picks for the Best High-Yield Savings Accounts of 2024



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See 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.

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4.25% annual percentage yield as of July 5, 2024

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If the Federal Reserve takes action to lower interest rates, CD rates will likely follow. This is obviously bad news for those who invest in CDs because the chance to earn a generous return could disappear quickly once the Fed starts with rate cuts.

On the other hand, CD rates are likely to stay steady or increase only if the Fed doesn’t act or if the Fed raises rates instead. The central bank has kept rates steady throughout 2024 because inflation hasn’t been as bad as it was in the last two years. CD rates have already begun to decline a bit this year, with fewer than 3,000 CDs offering rates of 5.00% or above in March of 2024 — compared with over 3,900 CDs offering those yields at the end of 2023.

This trend is likely to continue if inflation stays steady, so the only way that rates are likely going to stay stable or increase is if there are signs that inflation is picking back up again. Unfortunately, this would also be bad news for CD investors. That’s because high inflation makes everything more expensive, eroding the real buying power of their savings and investments.

So, basically, CD investors can’t win. Either rates go down and the great investment opportunities disappear, or rates stay the same or go up, leaving investors with less money because they’re spending more on everything else in their life.

Here’s what investors can do about it

This is not a great situation for CD investors to be in, but there is something they can do: They can build a CD ladder. This means:

  • Buying some short-term CDs at really competitive rates that will mature soon.
  • Buying some long-term CDs at pretty competitive rates that will lock in today’s great yields for years to come.

You might put money into a 1-year, 2-year, 3-year, 4-year, and 5-year CD with each of those making up a different rung on your ladder.

If you take this approach, you’ll benefit if interest rates do go down. While you’d enjoy lower inflation, you’d still be able to earn high rates on your CDs for years into the future. Plus, you aren’t hurt as much if rates go up. You’ll be able to take money you invested in short-term CDs that you get back quickly and reinvest it in CDs paying higher rates in the future. This will help protect the value of your savings from eroding due to inflation.

Check out the best short-term CDs and the best 5-year CDs today to build your ladder so you can turn this lose-lose situation into a win.

These savings accounts are FDIC insured and could earn you 11x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.

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