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The inflation report for January is official and the verdict isn’t great. While inflation was lower in January than it was in December, it was still at 3.1% year over year — above many predictions of 2.9% and more than a point above the Federal Reserve’s target goal of 2%. That means borrowers will likely need to wait a bit more for some relief as interest rates aren’t likely to be cut until inflation comes down further. As such, borrowing rates for mortgages, credit cards, personal loans and more will probably stay elevated.
But, as has been the case in recent years, higher inflation isn’t completely bad. Savers, in particular, can earn exponentially more on their funds simply by depositing them into the right type of account right now. It just requires finding the best account with the right lender. To that end, there are some compelling reasons why you should open a certificate of deposit (CD) account following the new inflation report. Below, we’ll break down three of the major reasons to act now.
Explore your CD account options and start earning more on your savings.
Why you should open a CD following the new inflation report
Here are three reasons why you should open a CD following the new inflation report.
Rates are high right now
Have you checked CD rates lately? Depending on the lender you choose and the length of your CD term you may be able to find a rate of 6% or higher right now. And now that we’ve had two underwhelming inflation reports released consecutively, the chances of an imminent rate cut have dropped, meaning you have more time to shop around to find an account with the highest rates and minimal fees. Depending on how much you choose to deposit that could mean hundreds of dollars more earned in interest just over the next 12 months.
See what CD rate you could earn here.
CD rates are locked
Arguably the biggest benefit of a CD is the rate lock. In other words, the rate you open your account with today will remain the same for the CD’s full term, even if rates drop during that period. So while rates are elevated now, and will likely remain so for at least a few more months, historically, they won’t stay this high forever.
It makes sense, then, to lock in a rate now, when they’re higher following a poor inflation report than they likely will be when inflation gets back under control. And if you’re concerned that by locking in a rate now you could miss out on even higher returns in the future, don’t be. In these situations it may be worth laddering multiple CD accounts with varying expiration dates, thus allowing you flexibility to open CDs at different rates in the future while still earning interest at today’s existing APYs.
The alternatives aren’t as beneficial
If you have your money in a regular savings account right now, you’re essentially losing money. The 0.47% average rate a regular savings account comes with isn’t even keeping pace with inflation.
High-yield savings accounts, meanwhile, have multiple advantages worth exploring but they typically don’t come with rates as high as the best CDs. Nor will they lock in that rate the way CDs will, meaning that the returns you can earn are guaranteed to fall as the rate climate changes and interest rates drop. With this understanding, then, it becomes clear that the alternatives simply aren’t as beneficial as many of today’s top CD accounts.
The bottom line
With inflation much lower than it was a few years ago – but still stubbornly above goal, thus preventing rate cuts – savers should be judicious with both how they spend and save their money. To the latter point, a CD account can be a great way to protect and grow your money with minimal risk, especially now. By opening an account after the latest inflation report savers can secure a still-elevated rate and lock it in for months or even years. And when stacked up against some popular alternatives, the benefits of a CD now versus a regular savings account or a high-yield one with a variable rate, become even more transparent.
Ready to get started? Look into your CD account options here today!
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.
