3 Tips for Making the Most Out of Your CDs and Savings Accounts

Inflation started rising in 2021 as consumers found themselves flush with cash due to generous government stimulus policies. To combat inflation, the Federal Reserve implemented a total of 11 interest rate hikes during 2022 and 2023. That drove the cost of borrowing up, which hasn't been a great thing for consumers in need of loans, or those with credit card balances.

On a positive note, though, the Fed's string of interest rate hikes had led to banks paying more generously. And these days, savings account and CD rates are pretty attractive.

If you have money to spare, you should take advantage of today's higher savings rates. But it's also important to manage your accounts wisely. To that end, here are three tips to employ.

1. Research rates

You may be comfortable with your bank and a big fan of its app or customer service. But today's elevated interest rates aren't going to be around forever. So if you're looking to put money into savings or a CD, then it's a good idea to research rates across different banks and see which are the most competitive.

Often, opening a new bank account takes just minutes. You usually need to enter some basic information like your name, address, phone number, and Social Security number. Also, funding a new bank account is usually easy, since you can often link to an existing one and transfer funds electronically.

It especially pays to research rates if you're thinking of opening a longer-term CD. Now's actually a pretty good time to do so, because the Fed seems to be done with rate hikes and is likely to start cutting rates pretty soon. Once that happens, you may not find the same competitive CD rates you're seeing today, which is why now's a good time to lock your money up for a longer term -- say, 48 or 60 months.

2. Know when to choose a savings account over a CD, and vice versa

CD rates tend to be higher than savings account rates. But there are certain times when putting money into a CD is the wrong move, and you're better off with regular savings. You should not put money into a CD that you're earmarking for:

• Emergency or unplanned expenses
• Near-term expenses, like a trip, furniture, or down payment on a car
• Really far-off goals, like college or retirement, since you're better off investing funds you don't expect to need for a decade or more

3. Ladder your CDs for more flexibility

Cashing out a CD before it comes due can result in a costly penalty, the exact amount of which will depend on your bank and the length of your CD. To avoid landing in a situation where you're facing a penalty because you need the cash you've tied up in a CD, set up a CD ladder. That way, you'll have funds coming due at different times during the year.

For example, let's say you have $10,000 to put into a CD. You could divide that sum into four $2,500 portions and open:

• One 3-month CD
• One 6-month CD
• One 9-month CD
• One 12-month CD

This way, you have access to a portion of your cash every three months.

It's a great time to have money in the bank. Make the most of your savings and CDs by sticking to these tips.