3 Reasons to Open a CD in July

Recently, I told a friend that I was thinking of opening a new CD in July. Her response? "Eh, I'm kind of over it."

I can see where she's coming from. There's been a lot of hype about CDs lately, and there may be better things you can do with your money. But here are three great reasons to open a CD in July that should tempt you to jump on the bandwagon.

1. Rates are super attractive

The Federal Reserve implemented numerous interest rate hikes in 2022 and 2023 that have, unfortunately, driven up the cost of borrowing. But the silver lining is that CD rates are the highest they've been in years. So if you open a CD now, you might score a nice amount of cash that helps you work toward a goal you're trying to achieve (or, you might simply use that extra cash however you please).

For example, for a CD paying an APY of 5.00%, you can put in $1,000, and you'll be $50 richer in a year from now. If you have $10,000 to put into a 12-month CD, you're looking at $500 after a year, guaranteed (as long as you leave your money in for the full term).

Our Picks for the Best High-Yield Savings Accounts of 2024

Capital One 360 Performance Savings APY 4.25% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings Member FDIC.	APY 4.25% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.	Min. to earn $0
American Express® High Yield Savings APY 4.25% Rate info 4.25% annual percentage yield as of July 2, 2024 Min. to earn $1 Open Account for American Express® High Yield Savings Member FDIC.	APY 4.25% Rate info 4.25% annual percentage yield as of July 2, 2024	Min. to earn $1
Citizens Access® Savings APY 4.50% Min. to earn $0.01 Open Account for Citizens Access® Savings Member FDIC.	APY 4.50%	Min. to earn $0.01

2. You're not taking on the risk that comes with investing

CDs aren't the best option if you're saving for a goal that's many years in the future, like retirement. But what if you're saving for a goal that's only a year or two away, like college, a new car, or some home improvement projects?

In that case, you definitely don't want to invest your money in stocks or other assets that could lose value. A CD is a much safer bet.

If you open a 2-year CD with $5,000, you can't lose your $5,000 (assuming you're at an FDIC-insured bank). With a $5,000 stock portfolio, your investment might only be worth $4,000 at the time you need to use the money.

3. You're protected if the Fed starts cutting rates later this year

You may be inclined to keep your money in a regular savings account instead of a CD this July. That way, you can take your cash out whenever you want without having to worry about an early withdrawal penalty. And since it's possible to snag a great rate on a high-yield savings account, that might seem like a safer bet than opening a CD.

But remember, with a CD, you're locking in a guaranteed rate for the duration of that CD. With a savings account, your interest rate isn't guaranteed at all.

The Fed is expected to start cutting interest rates at some point in 2024. Once that happens, CD rates and savings account rates alike are likely to fall. Only if you lock in a CD before the Fed's first rate cut, the APY you start out with is the one that will stick.

So let's say you're able to open a 12-month CD at 5.00% APY and deposit $2,000. That's $100 in interest, guaranteed. You might start out earning 4.00% APY in your savings account, which gives you $80 in interest after a year but more flexibility. But if your savings account's APY falls to 3.50% at the end of 2024 and then drops to 3.00% during the first quarter of 2025, suddenly, there's a larger gap in the amount of interest you're able to earn.

All told, CDs make a lot of sense this month. If you have money you don't need for your emergency fund or don't have earmarked for a near-term expense, then it pays to shop around for a new CD and open one before rates start creeping downward. And that could happen sooner than expected, so consider yourself warned.