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Why CDs Become So Valuable When Rates Fall

If you have cash savings you don't need for a while, 澳洲幸运5开奖号码历史查询:certificates of deposit (CDs) provide an opportunity to earn a safe, high-yield return that can't be reduced during the CD's term. Though you can sometimes earn more with a high-yield savings account, that rate can drop at any time. But a CD's rate will be yours to keep until maturity—whether that's a short 3 months or a lౠen⛎gthy 10 years.

As you can guess, a CD rate lock is particularly useful when you can snag a high 澳洲幸运5开奖号码历史查询:annual percentage yield (APY) at a time when current rates are high and future rates appear headed lower. For insꦑtance, if you lock in today's top 2-year CD rate of 4.40%, y♐ou'll earn that guaranteed return until 2027. Compare that to a savings account that currently pays in the mid-4% range, but then may drop to the 3% or even 2% range over the next two years.

That is precisely the situation we're in right now. In fact, 澳洲幸运5开奖号码历史查询:the best CD rates are already down from the heights they reached in 2023 and 2024. But going forward, rates on savings, money market, and CD accounts are generally expected to fall further.

We say "generally" because interest rate trends are always hard to reliably predict months or years into the future, with the 澳洲幸运5开奖号码历史查询:Federal Reserve making each of its rate decisions meeting-by-meeting🅷 based on the latest economic data.

Additionally, today's economy is dealing with a highly unusual degree of uncertainty triggered by President Donald Trump's tariff policies. For instance, though Tuesday's inflation report brought 澳洲幸运5开奖号码历史查询:good news on April prices—with an inflation reading close to the Federal Reserve's target of 2%—many economists expect 澳洲幸运5开奖号码历史查询:inflation to tick up as the impact of tariffs takes hold.

Time will tell whether inflation rises—and by how much—and how the Fed will react. If 澳洲幸运5开奖号码历史查询:inflation stays in check, the central bank may lower the 澳洲幸运5开奖号码历史查询:federal funds rate later this year, which would push savings and CD rates lower. But how sure is it that the Fed will lower rates? And by how much? Let's look at what's currently predicted and how to make a CD choice in light of it all.

Today's Rate Predictions for 2025 and 2026

Once per quarter, the Federal Reserve's rate-setting committee publishes its "Summary of Economic Projections," which includes a useful "dot plot" forecast of where committee members expect the federal funds rate to be at the end of this year and the next two calendar years. In the most recent dot plot, released March 19, the median Fed prediction was for two 0.25-point rate cuts (0.50 points total) by the end of 2025, and then the same reduction in 2026.

But not only is that forecast almost two months old, it came before President Trump unveiled his tariff policy on April 2—and before the administration's tariff flip-flopping of the past six weeks. Unfortunately, we will not get another forecast from the Fed until June 18.

In the meantime, we can look to what interest-rate futures traders predict, which is shown 24/7 in the 澳洲幸运5开奖号码历史查询:CME Group's FedWatch Tool. Though last week saw majority odds of a first rate cut at the Fed's June meeting, and then three 0.25-point rate cuts by year's end, expectations have shifted. As of this writing, it's not until the Sept. 17 meeting that we see a majority probability for a Fed rate cut. And by the end of 2025, most traders expect no more than two 0.25-point reductions.

However, December 2025 is many months away, and 2026 even harder to predict, with 澳洲幸运5开奖号码历史查询:many tariff impacts still possible ꦛand numerous data releases potentially alterin🍰g the Fed's course. So these predictions should be treated merely as best guesses based on what the market knows today.

So, What CD Term Should You Choose?

With its economic and political unknowns, the current rate environment is certainly a factor to consider when deciding how long a CD rate lock you'd like to secure. But above all, CD shoppers should think hard about their personal financial timelines. That is always the first step when committing funds—and it's essential when opening a CD since cashing in before maturity would trigger an 澳洲幸运5开奖号码历史查询:early withdrawal penalty that reduces earnings.

Once you've decided how long you're comfortable locking your money into a CD, the next step is determining what you think is most likely for future interest rates. And there is really no way around the fact that, at this time, it is unknown what will actually happen. And it could be several months still until that picture clarifies.

But it seems like a relatively safe bet that a Fed rate increase is unlikely. As we've said, financial markets see strong probabilities of rate slides by the end of 2025. And even if inflation ticks higher, a plausible course for the Fed will be to simply hold its benchmark rate where it is for now. A Fed rate hike seems very unlikely this year.

So that means the CD rates you see today will probably be the best you can get for a while. Perhaps it means there isn't urgency, as these rates may stay stable for some weeks or months. But since a winning CD offer can be taken off the market overnight, if you see a rate you like, with a duration that fits your personal timeline, it's likely smart to lock that in now.

Of course, a 3- to 6-month CD will only secure your return for a 🎀limited time. Going with a longer CD, such as a top 1-year or 18-month offer, or even a 2-year CD, will give you a longer runw💟ay of safe, predictable earnings.

CDs of 3 to 5 years could prove wise as well, as it's certainly possible that 澳洲幸运5开奖号码历史查询:the top CD rates w🎉ill fall from the mid-4% range this year to, say, 2% in the coming few years—or even below 2%. If that happens, earning above 4% as far out as 2028, 2029, or even 2030 would be a welcome return on your money.

Of course, no one can reliably predict what will happen to interest rates that far out. But given how historically high interest rates are right now, and that the odds of rate cuts are significantly higher than the probability of hikes, locking in a guaranteed 4%-plus🌺 return, with no risk♉ and no uncertainty, is a likely win in most scenarios.

How We Find the Best Savings and CD Rates

Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account's minimum initial deposit must not exceed $25,000. It also cannot specify a maximum deposit amount that's below $5,000.

Banks must be available in at least 40 states to qualify as nationally available. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, 澳洲幸运5开奖号码历史查询:read our full methodology.

Correction—May. 15, 2025: This article has been corrected to state the month on which the FedWatch tool predicts the next federal funds rate cut.