Certificates of deposit (CD) are definitely having a moment right now. With the Federal Reserve finally starting to trim away at borrowing rates, savers have been left out in the cold.
Traditional savings yields inevitably move in-step with the federal funds rate. That’s because most accounts are variable-rate products. As a result, it’s going to get really hard over the coming months to find products that pay out decent interest rates.
But CDs are offering savers a real lifeline right now.
With the Fed signaling more rate cuts are on the horizon, CDs offer a low-risk way for savers to lock in a fixed rate and generate pretty strong yields over the medium term. But it’s important to bear in mind that CDs aren’t the right option for everyone — and if you want to lock in a good rate in 2025, you’ve got to act fast.
Here’s what you need to know:
A certificate of deposit (CD) is a savings product that pays out a fixed rate of interest for a predefined time period. Because the annual percentage yield (APY) you’re getting is fixed, CDs offer a guaranteed return and insulate you from future rate cuts for the duration of your savings agreement.
But that rate protection comes at a price.
Unlike a traditional savings account, you can’t dip into a CD and withdraw cash whenever you need it. You’re required to keep your money deposited until the account reaches its maturity date.
That’s because you’re essentially loaning a bank money when you take out a CD. So if you do need to take money out of your CD before the agreed date, you’ll normally be charged fees and forfeit future interest payments.
Banks offer a range of CD products, with terms lasting anywhere from three months all the way up to five years. As a result, a lot of savers treat CDs like the halfway house between a savings account and bond markets. With a CD you’re losing liquidity, but it’s an easy way to generate passive income in a low-risk way.
The number one benefit you’re getting from a CD is a higher return. As compensation for locking up your funds, banks offer higher APYs on CDs than you’re going to get with an ordinary savings account.
Right now, your average savings account offers 0.4% interest on deposits. On the flipside, you can find CDs online currently offering APYs above 4%. There’s absolutely no contest there. You’re likely not even going to get rates like that from a high-yield savings account, especially now that the Fed’s started a new rate cutting cycle.
Best of all, those returns are guaranteed. Unlike investing, CDs aren’t subject to wild market swings or volatility. When you deposit into a CD, you know exactly how much money you’ll get back (and when). You’re locked into a rate no matter how much the Fed cuts borrowing rates.
That creates a degree of certainty you won’t find anywhere else.
Then there’s risk (or lack thereof) to consider. Because CDs are protected by the Federal Deposit Insurance Corporation (FDIC), your deposit is always protected. You’ll be insured for up to $250,000 per account.
Combined, all of these benefits make CDs a really solid place to park idle cash. This isn’t the right option if you’re looking for an emergency fund or have a really short-term savings goal. But if you know you’re not going to need access to funds for the next 12-24 months and want to put that money to work, opening up a CD is a smart move.
That’s why everybody’s taken a keen interest in CDs over the last week or so.
When the Federal Reserve lowers borrowing rates, banks tend to compensate by pulling back on the yields they offer savers. That means you’ve probably already gotten an email from your bank to let you know the rate on your savings account is going to decrease over the coming weeks.
This isn’t great news if you’ve got a lot of cash sitting in a savings account. But the worst news of all for savers is that the Fed has already signaled there are more rate reductions on the horizon. Market watchers are expecting two more cuts before 2026.
Consequently, CDs are looking super attractive right now as we speed into the tail end of 2025.
Because borrowing is already starting to get cheaper, banks need to keep CD yields relatively high to attract deposits and fund new loans. Online challenger banks are offering some particularly aggressive rates going into October.
Savers who want to lock in higher rates should be looking into setting up CDs before those deals start to dry up. And make no mistake: CD rates will start to go down over the next three months. They’ll still be higher than just about any other savings product, but you can expect a significant dip between today’s rates and what we’ll see at the start of 2026.
At the end of the day, CDs aren’t the right option for everybody. If liquidity is important to you, you’d be better placed opening up a high-yield savings account. Likewise, the stock market can probably offer better long-term growth opportunities if you’re a value investor.
But if you’ve got a decent amount of idle cash and want to use that cash right now to generate a safe, predictable yield, a CD might be your best bet. Just don’t sit on it for too long. If you’re looking for the best possible rate, you need to lock in sooner rather than later.
On the date of publication, Nash Riggins did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
