Why You Should Open a Long-Term CD Ahead of the July Inflation Report

Certificate of Deposit (CD) Accounts have been smart and effective ways to grow your money in recent years, thanks to inflation and one higher rate climate. Therefore, rates on CDs have grown exponentially compared to what they were a few years ago. Today, it is not difficult to find an account with a rate of 4% or more.

But CDs don’t work exactly like other savings vehicles.

Savers will have to agree to leave their money in the account for the entire duration of the transaction. CD term or risk having to pay a early withdrawal penalty to get it out before maturity. And there are several terms to choose from, with short term those lasting less than 12 months and long term There are plenty of long-term CD options. But with the next inflation report set to be released on July 11 (which will detail June’s inflation rate), some savers may be wondering which option is best for them today. For many, the answer is clear. Below, we explain why you should open a long-term CD before the July inflation report is released.

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Why You Should Open a Long-Term CD Ahead of the July Inflation Report

Here are three reasons why you should seriously consider opening a long-term CD before the next inflation report is released.

Rates are only slightly lower than short-term CDs

Of course, rates on short-term CDs are slightly higher than long-term accounts right now (a direct reversal of historical trends). But the difference is negligible (usually less than a percentage point), so it makes sense to take advantage of it now. You could potentially win hundreds and even thousands dollars right now, depending on how much you deposit and the rate you lock in. CD rates change often, though, so you should shop around and consider being proactive while such high rates are still readily available.

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Rates expected to drop soon

As inflation continues to decline, a cut in the federal funds rate becomes more likely. And even though these cuts don’t happen as often as many expected As the year begins, it’s likely that there will be at least one cut before the end of 2024. When that happens, rates on savings vehicles like CDs will drop along with it. So don’t wait for that to happen. And remember, even a hint of an imminent rate cut could reduce what lenders are offering on these products, so there may be less time than it seems to take advantage of today’s high rates.

Your returns will be blocked – and predictable

CD rates, as mentioned earlier, are locked in and will remain the same for the entire term of the CD. This is a major advantage in today’s world of declining rates. No matter how low rates go during the life of your long-term CD account, you will continue to enjoy the high rate you opened the account with. These returns, unlike those that can be obtained with high-yield variable rate savings accountswill be both locked in and predictable. In a changing rate environment, this is a major advantage compared to other popular alternatives.

The essential

While it’s beneficial to open both short- and long-term CDs now, there’s a strong case for opening a long-term CD as soon as possible, preferably before the next inflation report is released. Rates on these accounts are still comparable to many other alternatives (if slightly lower). And since these rates are fixed, and if you wait you could buy a CD in a lower-rate climate, it makes sense to lock in the long-term CD at the highest rate you can find now. Just be sure to only deposit an amount that you’re willing to part with over the life of the CD, or you could end up paying the early withdrawal penalty to regain access to your funds.