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With Memorial Day in the past and summer unofficially underway, many Americans may find themselves looking for new and secure ways to grow and protect their money. While inflation has significantly cooled from its decades-high in June 2022, it remains sticky going into June 2024 at 3.4%— more than a full percentage point over the Federal Reserve’s target 2% goal. And, the federal funds rate has remained untouched since July 2023, causing the borrowing costs for many credit options to stay elevated.
Amid this climate, then, savers would be well-served by exploring their certificate of deposit (CD) account options. CDs are currently offering returns of 5% or more right now, depending on the lender and the term (or length) of the CD account. With this in mind, some savers may be wondering if they’re better off with a short-term (12 months or less) or a long-term CD (multiple years) heading into June. Below, we’ll break down what they should consider before getting started.
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Is a short-term CD or long-term CD better to open this June?
Here’s what to consider (both positive and negative) when determining if a short-term or long-term CD will be more advantageous to open in June.
Why a short-term CD could be better to open this June
Inflation has been more problematic than many had expected it to be in 2024, and while many still don’t expect the Fed to raise interest rates any further, it’s more of a possibility now than it had seemed in January. If the Fed does raise rates soon (they meet again on June 11 and June 12) it may be better to open a short-term CD instead of a long-term one. These CDs have terms as short as three months, allowing you to take advantage of a presumably higher rate climate in September.
If you were to open a long-term CD instead, however, you’d lose the ability to more accurately time your savings strategy to today’s evolving rate climate. Plus, short-term CDs typically have slightly higher rates than long-term CDs right now (a historic reversal), making them an optimal choice for those looking for the highest return possible.
Learn more about your short-term CD account options online.
Why a long-term CD could be better to open this June
On the other hand, if you feel that the slight upticks in the inflation rate so far are temporary — and that rate cuts are inevitable, possibly even in 2024 — then a long-term CD could be better to open this June. By choosing this option, savers can lock in today’s elevated rates for years to come, regardless of any rate cut activity that occurs during that time frame.
It’s also important to crunch the numbers in these circumstances. Is a slightly higher rate for a short-term CD really worth it if the CD matures in 90 days? In many circumstances, you may be able to make more by proceeding with a lower rate, longer-term option. That said, you will have to pay early withdrawal penalties to access any funds you need prematurely, so you should only deposit money you can comfortably afford to part with for the full CD term.
Learn more about your long-term CD account options online.
The bottom line
This June is a great time to open a CD, whether it be a short-term or long-term account. For those who want the benefits of both — but want to offset the cons detailed above — a CD laddering strategy, however, may be best. This involves opening multiple CDs with different terms, allowing you to earn today’s high rates while still being able to move money around as accounts mature and the rate climate evolves. Whatever you ultimately decide to do for June, however, avoid being complacent. Today’s CD rates won’t stay this high forever and you should do what you can to smartly capitalize while they’re still widely available.
Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
