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There Is Still Time to Lock In Those 5 Percent CDs

The Fed isn’t cutting interest rates yet, but savers shouldn’t wait too long

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With inflation lingering, the economy chugging along and unemployment low, the Federal Reserve isn’t in a rush to cut interest rates, at least until potentially later this year. That means savers have more time to lock in certificates of deposit (CDs) paying 5 percent or more. That doesn’t mean rates will soar much higher, but the window is still open to get a good return on your savings. 

“The timetable when the Fed starts cutting interest rates keeps getting pushed back,” says Greg McBride, chief financial analyst at Bankrate. “If you have the available cash and are thinking of locking in, now is a great time to do it. Waiting offers no assurances that you’ll find higher CD yields later.”

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After more than a decade of near-zero returns, some CDs now yield as much as 5.4 percent. That’s because the Fed steadily raised its key short-term interest rate 11 times beginning in March 2022 to fight rising inflation. The Fed’s current target range for its key rate, which influences rates on everything from car loans to bank accounts, is between 5.25 percent and 5.5 percent. 

Retirees and others on fixed incomes have benefited from the resulting higher savings rates. You can even get as much as 5.25 percent for bank money market accounts. (Some regular banks haven’t gotten the news and still offer as little as 0.1 percent.)

If you need a microscope to see the yield on your savings — your bank isn’t required to raise rates just because the Fed does — it may make sense to grab higher yields now. A $10,000 deposit earning 0.1 percent will give you $10 a year in interest, enough for a candy bar or two. At 5.75 percent, that’s $575, enough to buy several fancy meals. Those yields won’t be there forever now that the Fed is telegraphing that it will eventually cut interest rates, rather than increase them. “If you’ve been waiting, now is the time to lock in rates,” McBride says. If inflation does indeed fall in the next year, as some economists predict, your inflation-adjusted return will be even higher.

How to do it

Shop around for CDs. Check rates on websites such as or to get a sense of the range of current offerings. Online banks often dangle the highest yields because their overhead is lower. Also stop by your local bank or credit union to see if its CD rates are competitive. Sometimes customers who meet a minimum deposit requirement, perhaps $5,000, can get special rate offers.

Alternatively, consider Treasury securities from the U.S. government. Like bank CDs, they pay a guaranteed fixed rate of return for a fixed period of time as long as you hold them to maturity. You can purchase Treasuries from the government at, or invest in them through a brokerage account.  If you’re willing to risk fluctuating yields, a bank money market account or a money market mutual fund can help you easily take advantage of the Fed’s largesse. These accounts typically track the yield on short-term Treasury bills, which currently pay between 4.81 and 5.39 percent. Today, the average money market fund yields 5.03 percent, according to Crane Data, which tracks the funds, and high-yielding bank money market accounts yield about the same.

There are two big differences between a bank money market account and a money market fund. The first is that the bank has federal deposit insurance, while the money market mutual fund doesn’t. The other is that a bank account has an administered rate that depends, in part, on the bank’s need for funding. Your bank could lower its money market account rate to whatever it likes, whenever it likes, no matter what Fed Chair Jerome Powell thinks. Money funds can only promise you the best yields it can find in the short-term money market.

The upside of a money market account or money fund compared to a CD is you can withdraw the money whenever you need it. CDs have penalties for early withdrawals. The downside is the rate of return for a money market account or money fund fluctuates.

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Going long

Normally, if you want to lock in rates for a long time, you simply buy a CD or Treasury security that has a longer maturity — say, five years. Unfortunately, that tactic doesn’t work well in today’s market, where short-term rates are higher than long ones. (This is called an inverted yield curve, and it’s unusual.) “Yields are peaking now, and from the standpoint of income investors, there’s no incentive to wait,” McBride says.

Banks tend to lower savings rates quickly and raise them slowly. If you want a guaranteed yield for the next five years, you’ll have to find one that’s better than the highest-yielding money market account (or money funds) offer. Currently, the highest-yielding five-year bank CDs yield 4.7 percent.

The Treasury also has options for short-term savings. You can buy Treasury securities, such as the five-year T-note, which yields 4.66 percent. You might also consider Treasury Inflation-Protected Securities, or TIPS, which pay about two percentage points above inflation, currently 2.4 percent. Note that TIPS returns adjust as inflation changes; the rate of return isn’t fixed. Interest from Treasuries is generally free from state income taxes, but it is subject to federal income tax.

Cashing out early from Treasuries or CDs is relatively simple, but it could cost you. Typically, banks want three to six months’ interest for an early withdrawal penalty from a CD, although each bank sets its own early withdrawal penalty. If you invest in a five-year CD with a three-month penalty and withdraw after one month, you could lose some of your principal.

Similarly, if you sell a Treasury note before it matures, you could lose money on the deal if interest rates have risen since you bought it. (Why would someone buy your T-note if they can get a better yield elsewhere?) Conversely, however, you could make money on the deal if you sell after interest rates fall.

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Building a ladder

Even Wall Street professionals will tell you that predicting the course of interest rates is about as easy as predicting next month’s weather. It may be that the Fed decides to hold interest rates high till next year, even though most betting is for three rate cuts beginning this summer.

“I think it probably makes sense to hedge your bets,” says Ken Tumin, founder of One way to do that: Build a CD (or Treasury) ladder.

One approach: Divide your savings into four parts and take out a one-year CD every three months. If rates rise, you’ll lock into higher CD yields every three months. If rates fall, you’ll get higher rates for longer than if you invested in a money market account.

Alternatively, invest your savings into five CDs: A one-year, a two-year, a three-year, a four-year and a five-year. When the one-year CD matures, you can roll it into another CD — a five-year CD if rates have risen, or a shorter-term CD if rates have fallen.

If you’re a CD shopper, you’ve probably taken advantage of special offers from your bank — 5 percent for a six-month CD, for example — and that’s wise. But pay special attention to your CDs when they mature. “Anybody that got into these special CDs should beware when they mature,” Tumin says. Often, they roll over automatically into a CD with the low standard rate, Tumin says — and at some banks, that will put your right back at 0.1 percent.

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