What CD account savers should know in 2025

one Certificate of Deposit (CD) Account In recent years, this has become almost mandatory for savers. thanks peak inflation and the resulting rise interest ratesavers are making much more on CD accounts than they were in 2020 or 2021. CD interest rates are typically in the 4% or 5% range, and some savers are even able to earn 6% or 7%. But as inflation falls in 2024, the Fed cuts interest rates again, and the Fed cuts interest rates sharply. federal funds rate Three times in the last few months of the year.

These actions result in lower returns on CD accounts. But they don't render these accounts useless, either, as savers can still earn substantial returns on their money. They just need to take a more nuanced and strategic approach than they have in recent years. To that end, below we'll detail some important CD account considerations that savers should know in 2025.

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What CD Account Savers Should Know in 2025

Are you ready to start using CDs this January? Here's what you should (and shouldn't) do now:

DO: Choose a long-term CD

Currently, long-term certificates of deposit have lower interest rates than short-term certificates of deposit. But the interest rate difference is negligible, and the long-term interest income potential of a long-term CD is much higher. Take a $5,000 deposit as an example. The amount deposited into a 1-year CD (currently 4.50%) will only increase by $225 maturity. But depositing this amount into a 3-year CD with an interest rate of 4.15% would earn $648.69. So if the end goal is to earn as much interest as possible, forego the higher short-term CD rates and opt for longer-term CDs instead.

Start here with long-term CDs.

DON’T: Wait for rates to change again

The pace of rate cuts is expected to be much slower in 2025 than in the final months of 2024. But that doesn't mean savers should be complacent either. While banks use the Fed's actions as a guide for providing services to depositors, they are not required to follow those actions directly. If they start to think another rate cut is coming, they may lower the rates they offer savers in response to the cut. Well, there's no benefit in waiting to open the CD. Instead, lock in a high-rate, longer-term CD now.

DO: Deposit as much as possible for as long as possible

It is crucial to accurately calculate your fixed deposit deposit before opening an account. because you need to pay Early withdrawal penalty If you withdraw your funds too early, this could wipe out most (or all) of the interest you earn, and you'll want to make sure the funds in your account aren't affected. That said, today's CD rates are unlikely to be this high for several years (barely breaking 1% in 2020). So do the math and deposit as much as you can to make the most of this timely opportunity.

DON’T: Leave funds in other account types

Although you need money checking account For obvious reasons, you should avoid leaving too much money in other non-CD accounts right now. high yield savings accountfor example, there is Rate Competitive with CDs, but the interest rates on these accounts changeable As the interest rate environment continues to cool, interest rates are likely to fall further. The interest rate on traditional savings accounts is now just 0.42%. Therefore, leaving too much money in either account should be avoided, at least while CDs still offer higher, more reliable returns.

bottom line

Every saver's financial situation is different, but most will benefit from opening a long-term certificate of deposit now. However, acting strategically and quickly is key. By taking the actions above and avoiding questionable ones, savers can set themselves up for CD success in 2025 and potentially in the coming years.

Have more CD questions? Learn more about your options here today.