Should You Open a 5-Year CD in July 2024?
KEY POINTS
- A 60-month CD will generally have a lower APY than a shorter-term CD this July.
- You might make more money with a 5-year CD all in.
- July could be your last opportunity to lock in a CD before the Fed starts lowering interest rates.
If you're thinking about opening a CD this July, you're probably in good company. A lot of people are opening CDs to take advantage of today's competitive rates.
You may be inclined to open a 6- or 12-month CD this July while rates are up. But have you considered a 5-year, or 60-month, CD?
You might think that a CD like that doesn't make sense for a couple of reasons. First, it's a long commitment. But also, most 5-year CDs aren't offering as high an APY as shorter-term CDs.
But actually, if a 60-month CD aligns with your financial goals, then July could be a great time to open one. Here's why.
Our Picks for the Best High-Yield Savings Accounts of 2024
Capital One 360 Performance Savings
APY
4.25%
Rate info
See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.
Min. to earn
$0
Open Account for Capital One 360 Performance Savings
On Capital One's Secure Website. |
APY
4.25%
Rate info
See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.
|
Min. to earn
$0
|
American Express® High Yield Savings
APY
4.25%
Rate info
4.25% annual percentage yield as of August 23, 2024
Min. to earn
$1
Open Account for American Express® High Yield Savings
On American Express's Secure Website. |
APY
4.25%
Rate info
4.25% annual percentage yield as of August 23, 2024
|
Min. to earn
$1
|
UFB Portfolio Savings Account
APY
5.15%
Rate info
To ensure you keep getting the highest rate at UFB, you'll need to keep an eye on their rates. Occasionally, the bank launches new accounts with higher rates. Existing accounts need to contact the bank to request being moved to one of these new accounts.
Min. to earn
$0
Open Account for UFB Portfolio Savings Account
On UFB's Secure Website. |
APY
5.15%
Rate info
To ensure you keep getting the highest rate at UFB, you'll need to keep an eye on their rates. Occasionally, the bank launches new accounts with higher rates. Existing accounts need to contact the bank to request being moved to one of these new accounts.
|
Min. to earn
$0
|
It's all about the guaranteed interest
Most banks are offering their best interest rates on shorter-term CDs right. For example, you'll find the APY on a 12-month CD is around 5%. For a 60-month CD, it's around 3.9%. That's a pretty notable difference in CD rates.
But one factor you should keep in mind is that with a 60-month CD, you're guaranteed today's rate for the next five years. With a 12-month CD, you're taking the risk that rates will fall over time.
You may have heard that the Federal Reserve is planning to cut interest rates now that the pace of inflation has slowed down. Once that happens, CD rates are likely to fall, as are interest rates for regular savings accounts.
In fact, July may be the last time you're able to lock in a CD before the Fed's next interest rate cut. The central bank is scheduled to meet on July 30 and 31. If a rate cut is announced then, CD rates could start to fall as early as August.
Does a 5-year CD make sense for you?
Clearly, you won't lock in as high an APY with a 5-year CD as with a 12-month CD. But remember, we don't know how low CD rates will get over the next few years.
If you open a 12-month CD today, in a year, the best rate you may be able to get could be 3.7%. A year later, you may be looking at 2.3%. And a year after that, the top rate for a 12-month CD may be 1.75%.
Of course, without a crystal ball, we can't predict with any sort of certainty what CD rates will look like in the coming years. What is certain, though, is that if you open a $10,000, 60-month CD today at 3.9%, you're guaranteed to earn $2,108 in interest. With a 12-month CD at 5%, with that same amount, you're guaranteed to earn $500 in interest in the next year. Beyond that, it's anyone's guess.
That's why a 5-year CD could make sense for you if it aligns with a financial goal you have. If you've just started saving for a home but know you're at least five years away from being able to buy, then a 60-month CD might help you grow your down payment nicely.
Or, if you have a child who's set to start college in a little more than five years, a 60-month CD allows you to earn a nice amount of interest without taking on the risk of investing your education fund in stocks (something you may not want to do at the tail end of your savings window).
But remember, five years is a long time. If you're not sure you should be tying up your money in the bank for that long, then don't do it. But if a 60-month CD works for you in theory, then July is a great time to open one.
Our Research Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
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