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After several post-recession seasons of almost zero interest rates on certificates of deposit, recent years have been marked by a clear improvement. This is partly thanks to the federal funds rate, which the Federal Reserve has raised nine times between December 2015 and December 2018.
The national average rate for one-year CDs rose from 0.33% APY in January 2017 to 1.01% in May 2019, according to Bankrate data. Still higher interest rates, ranging from 3 to 3.15%, are not uncommon for many large banks, according to Bankrate's rate summary, although higher rates are sometimes linked to deposits. minimum. But these higher interest rates may not stay.
No Fed rate hike is expected for 2019. According to some analysts, the Fed will cut rates this year, according to the Wall Street Journal. The word of the Fed is that cuts are not likely.
Is it time for you to take a CD before these rates disappear?
First, let's remember quickly: a certificate of deposit is essentially a short-term loan you give to a bank. In exchange for the privilege of withholding your dollars for six months, a year or more, the bank pays you interest. There are also no-penalty CDs, which allow you to withdraw your money at any time, but interest rates and minimum deposits may vary.
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CDs are generally recommended for short-term savings goals. If you save for a big purchase in a few years, storing your money in a FDIC-insured CD can prevent the temptation to spend for that time while paying very little interest.
If you could get a few extra dollars from interest and a CD was already on your list of options, now is the time to get one. But if you prefer to have money in your hands, still decent rates are likely to be available next year.
Take a look at the last two times the federal funds rate has dropped significantly (2000-1 and 2007-8) and you will see that the cuts have been gradual, rather than all at once. Yes, some slides are more visible than others (see December 2007 to May 2008). But unless we have an economic meteor, we will not go from 3% to 0.25% CD interest over a month.
If you want to keep your money away from the eyes and mind for a few months, a CD is a solid option right now. But it is not necessary to scramble to register just because these rates are ephemeral.
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