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For savers looking for a safe and effective way to take advantage of a higher interest rate climate, many options have been offered in recent years. From high yield savings accounts has certificates of deposit (CD) has money market accounts and even high throughput verification options, there were multiple ways to get a substantial return on your money with little risk.
But the interest rate environment is changing again.
The Federal Reserve, driven by falling inflation, reduce its federal funds rate for the first time in more than four years in September. Further reductions now appear likely for November and December as well. And while this will be a boost for borrowers facing higher interest rates, it could lead to a rapid decline in the benefits of the aforementioned savings instruments. Understanding this dynamic, savers may want to act aggressively. One way to do this is to invest $5,000 in a long-term CD in October, while it still pays off. Below, we’ll detail three reasons why you should seriously consider this move right now.
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Why you should invest $5,000 in a long-term CD this October
Not sure if it makes sense to open a $5,000 CD this month? Here are three reasons why this might be the right decision for your money.
Interest rates on long-term CDs are still high
Interest Rates on CDs have not changed dramatically from what they were a few months earlier, despite the change in rates. But that also doesn’t mean they’ll stay this high for much longer. So act while the opportunity is still available. You can open an 18-month CD with a rate of 4.40% right now. 2-year CDs, 3-year CDs, and 5-year CDs also all have comparable, although slightly lower, rates.
But if rate cuts are announced in the coming months – or if economic data is released showing that rate cuts are more likely – the yields on these accounts could decline in advance, even before formal action. the Fed takes place. So don’t wait for this to happen.
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You will get a high return even if rates fall
High-yield savings accounts have prices comparable to CDs at present, as are some other accounts. However, alternatives often variable interest rateswhich can and will decline as the overall rate environment does. CD rates, on the other hand, are fixed, allowing savers to benefit from the high rate with which they lock the account today for the entirety term of the account.
With a long-term CD, this can last between 18 months and 10 years. That said, you should only deposit an amount that you can easily afford to leave in the account for the duration, otherwise you may end up having to pay a early withdrawal penalty to reopen the account.
You can earn hundreds of dollars or more
Sometimes it’s easier to determine the true value of a financial product by calculating the exact return you’re likely to make. And it’s easy to do with a CD since the price is fixed. For example, if you open a 2-year CD with a rate of 4.20%, you will earn approximately $483 on your $5,000 deposit. If you hold the money longer, you will earn even more. A 5-year, $5,000 CD at 4.35% will leave you with a profit of about $1,187. Calculate the numbers in advance and research online lenders to determine exactly how much you could make by acting now.
The essentials
Sure, interest rates seem to be falling, but they haven’t yet fallen enough to offset the benefits of a long-term CD. By acting now, savers can still benefit from a high rate and will maintain it for the long term, even if the overall rate environment deteriorates. They will also potentially earn hundreds of dollars (if not more) with a $5,000 deposit into the right account. But timing is crucial here for success. As interest rates fall, and likely before then, lenders will begin to reduce their offers on accounts like this. It is therefore up to savers to act before this happens.
