Should You Open a 12-Month CD in July 2024?

There's a reason so many people are opening CDs this summer. CD rates are the highest they've been in years. So why wouldn't you want the opportunity to score a risk-free return on cash you aren't using for something else?

These days, it's pretty easy to score a 5% APY on a 12-month CD. And some banks may even be paying a little more, so it makes sense to shop around for the best rate possible.

But is opening a 12-month CD this month the right move for you? Here's why it could be -- or why you may want to go a different route.

The case for opening a 12-month CD this July

The primary reason to open a 12-month CD right now? It'll allow you to get in before CD rates start to fall.

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A big reason CD rates are up right now is that the Federal Reserve raised interest rates numerous times in 2022 and 2023 to slow inflation. And thankfully, the central bank's efforts have worked.

But now, the Fed is planning to cut interest rates, which should provide some financial relief for consumers who are juggling credit card balances or who need to sign loans. Once that happens, though, CD rates could start to fall in short order.

In fact, July may be the last time you're able to lock in a CD rate before the Fed's next interest rate cut, since the central bank is set to meet on July 30-31. We don't know for sure whether the Fed plans to announce a rate cut at its next meeting. But if it does, CD rates may dip lower in August -- all the more reason to make a move in July.

Why you shouldn't open a 12-month CD this July

Tempting as it may be to lock in a 12-month CD now, when you open a CD, you're forced to keep your money in the bank or otherwise risk an early withdrawal penalty. And that's not something you want.

You should steer clear of CDs this July if you don't have money beyond your emergency fund to lock up. Your minimum emergency savings goal should be three months of essential expenses.

So if you spend $2,400 a month on essentials now and have $7,200 in the bank, you're in great shape. But you should be keeping that money in a regular savings account so you can take a withdrawal at any time without having to worry about risking a penalty.

You should also hold off on opening a CD if you're not confident you won't need the money for something else before your CD matures. Maybe your car is older and is starting to show its age. Maybe you're well aware that your home's air conditioning system isn't functioning optimally.

You don't want to tie up money you might need for a near-term expense that's on the larger side. So unless you're 100% confident you can afford not to touch your money for 12 months, don't open a 12-month CD. It's not worth chasing the higher rate if it means potentially subjecting yourself to a costly penalty and a world of stress.