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MoneyWatch: Managing Your Money

3 CD accounts to consider with the Fed pausing interest rates

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By
Matt Richardson
Sr. Managing Editor, Managing Your Money
Matt Richardson is the senior managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
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Matt Richardson

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There are at least three CD accounts worth opening now that the Fed is keeping its federal funds rate high. Getty Images

Hope that the Federal Reserve would continue its interest rate cut campaign had dimmed toward the end of 2024 as the bank hinted at a slower pace in 2025. And that was made official on Wednesday when the Fed held its first meeting of the year, keeping the federal funds rate frozen at a range between 4.25% and 4.50%. It marked the first Fed meeting in which interest rates were not cut since July 2024.

While keeping interest rates the same won't be welcome news for borrowers, particularly those saddled with high credit card and personal loan interest rates, it could mark a final opportunity for savers to take advantage of today's still elevated rate climate. And one of the better ways to do so now is via a certificate of deposit (CD) account. Since these account terms and rates vary widely, it helps to know which ones to consider with the Fed pausing interest rates. Below, we'll break down three to look into now.

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3 CD accounts to consider with the Fed pausing interest rates

While every saver's financial preferences differ, here are three timely CD accounts many could benefit from opening now, while interest rates are frozen:

1-year CD

Right now, short-term CDs (which mature in 12 months or less) tend to have higher rates than their long-term counterparts. This is a direct reversal of the typical CD rate structure and can be exploited by savvy savers now. Savers can lock in a 4.40% rate on a 1-year CD if they act promptly. This will allow them to earn just over $4 for every $100 deposited and, because of the abbreviated term length, it'll be easier to earn that return than it would be by depositing money into a CD with a multiple-year term. That will also reduce the concern over early withdrawal penalties, which can eliminate all of the interest earned to date on the account. 

Just remember that CD rates don't mirror the Fed precisely. So, if lenders assume that interest rate cuts will be issued this spring, they could start reducing their rate offers before that's official. It makes sense, then, to lock in a high-rate, 1-year CD now.

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18-month CD

A top 18-month CD comes with an interest rate of 4.16% now and it will only require savers to keep their money in the account for an additional six months. That additional time, however, will lead to a bigger return even though the interest rate is technically lower. On a $5,000 deposit, for example, savers will earn around $315 upon maturity with the 18-month CD but $220 with the 1-year option. So, if you want the extra $95 and can comfortably afford to keep your money in a slightly longer CD, this makes sense to open now. It will also give you an additional six months to ride out any assumed rate climate volatility. 

2-year CD

For just 1 basis point lower, savers can lock in a 4.15% rate on a 2-year CD now. This will extend protection against rate changes for a full two years, at which point savers can better determine where to deposit their money after the interest rate climate stabilizes. Using that same $5,000 deposit as an example, savers stand to earn $423.61 upon maturity, making it the most profitable option on this list. But it will take 24 months to earn it and, like all CDs, there will be tax implications that will need to be accounted for. Still, if you want to protect your money for an extended period, even through additional rate cuts to come in 2025 and 2026, a 2-year CD could be worth exploring now.

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The bottom line

A pause in interest rate cuts gives savers some extra time to explore their options. With one of the above CD accounts savers can both earn additional interest and protect their money in the face of inevitable rate volatility to come. It's critical, however, to only deposit an amount of money that you can comfortably part with for the full term to avoid paying any penalties. If that's not doable, however, no-penalty CDs can provide a valuable alternative worth exploring. 

Edited by Angelica Leicht

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