Federal Reserve cuts may signal decline in CD rates, but some banks still offer competitive rates

From Yahoo Finance: 2025-03-22 06:00:00

The Federal Reserve has cut the federal funds rate three times in 2024, signaling a potential decline in CD rates. It’s crucial to lock in a competitive rate now before they fall further. CD rates vary widely, so compare offers to ensure you’re getting the best deal. Longer-term CDs historically offered higher rates, but the current economic climate has flipped that trend. The highest CD rate today is 4.50% APY, offered by Marcus by Goldman Sachs on its 14-month CD with a $500 minimum deposit. LendingClub also offers 4.50% APY on its 10-month CD with a $2,500 minimum deposit.

Interest earned from a CD depends on the annual percentage rate (APY), which considers the base rate and how often interest compounds. For example, a $1,000 deposit in a one-year CD with 1.81% APY and monthly compounding would grow to $1,018.25 after a year, including $18.25 in interest. Opting for a one-year CD at 4% APY would yield $1,040.74, with $40.74 in interest. Depositing more in a CD can increase your earnings, with a $10,000 deposit in a one-year CD at 4% APY yielding $10,407.42 at maturity.

When selecting a CD, the interest rate is crucial, but there are other factors to consider. Different types of CDs offer various benefits, such as bump-up CDs that allow rate adjustments, no-penalty CDs for early withdrawals, jumbo CDs that require higher deposits for potentially higher rates, and brokered CDs purchased through a brokerage. Each type has its pros and cons, so choose based on your financial goals.

Read more: CD rates today, March 22, 2025 (best account provides 4.50% APY)