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MoneyWatch: Managing Your Money

Should you lock in a CD rate before the next Fed rate hike?

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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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Right now is a great time to open a CD but rates rise yet again in the weeks to come.  Cagkan Sayin/Getty Images

Timing is everything and, lately, the timing has been very good for savers. Thanks to significantly elevated interest rates, the returns savers can earn with certificates of deposit and high-yield savings accounts have skyrocketed this year. Considering the paltry currently being offered on regular savings accounts, you're essentially losing money by not depositing some or all of your funds into one of these account types (or both).

That said, to earn the greatest return on these accounts, you'll want to open them at an opportune time. It wasn't that long ago (2020 and 2021, to be specific) that the APY on CDs was barely worth pursuing. But with rates now headed toward 6%, it's generally a smart way to grow and protect your money. And with a discouraging inflation report released on Thursday — and another Federal Reserve meeting on the books for October 31 —  it's unlikely CD rates will be dropping any time soon.

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Should you lock in a CD rate before the next Fed rate hike?

No one knows when exactly the Federal Reserve will raise interest rates again this year, but with the clock winding down in 2023, it could be as soon as November. With that understanding, there are some pros and cons to locking in a CD rate before the next rate hike.

Why you should lock in a CD rate now

CD rates are already elevated, so most savers can't go wrong by locking in one of these high rates now, even with the potential for them to creep up again before the year's over. If your money is only in regular savings accounts, then you're already operating at a loss, so it makes sense to stem those losses with a CD. 

Plus, you won't have to keep the money locked away for long. While long-term CDs historically offered better interest rates, due to the volatility of the current rate environment, savers can get some of the best rates on CDs with terms of 12 months or less. And, if you're really concerned about the possibility of missing out on a higher rate, you can ladder your CD accounts by opening one at today's high rate and another when rates rise again, giving you the best of both worlds and the flexibility knowing that your funds will expire at different times. 

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Why you shouldn't lock in a CD rate now

On the other hand, if you've waited this long to earn the high CD rates currently available, waiting a few more weeks won't really hurt. By waiting, you could position yourself to open an account with a rate that's even higher than those currently being offered. And, you can give yourself more time to research your online account options to find a bank offering a combination of high rates and little (or no) fees. Crunch the numbers and see which way you can make more on your deposit. If it means losing a little interest now to earn a better rate in November or December, it could be worth it for you.

The bottom line

The decision to lock in a CD rate before another interest rate hike is a personal one. By opening a CD now, you'll start earning high returns on your money right away. But by waiting, you could potentially earn even a higher rate in the weeks and months to come, particularly if the battle against inflation continues to remain stagnant. Do your research, compare online banks and . Only then will you be able to truly determine if locking in a CD rate before the next rate hike is worth it.

Edited by Angelica Leicht

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