5 CDs to Watch Before the Next Fed Rate Cut

Understanding the Impact of Federal Reserve Rate Decisions on CDs

The Federal Reserve's decisions to raise or lower its benchmark interest rate can significantly affect savings products, including certificates of deposit (CDs). When the Fed signals potential changes in interest rates, many savers turn to CDs as a way to secure current yields. Fixed-rate CDs, in particular, can be advantageous in a declining interest rate environment. By locking in a high yield now, you can continue earning that annual percentage yield (APY) throughout the CD’s term, even if your bank lowers the APYs on new CDs it offers.

Here are five competitive CDs available from well-rated, federally insured banks and credit unions, each with different term lengths:

6-Month CD: Bread Savings

• APY: 4.45%
• Minimum Deposit Requirement: $1,500
• Interest Earned with a $10,000 Deposit: $220
• Rating: 3.8 stars out of 5

Bread Savings is an online-only bank that offers nine terms of standard CDs ranging from three months to five years. Its CDs and savings accounts earn APYs that are well above national averages.

1-Year CD: Marcus by Goldman Sachs

• APY: 4.20%
• Minimum Deposit Requirement: $500
• Interest Earned with a $10,000 Deposit: $420
• Rating: 4.6 stars out of 5

Marcus by Goldman Sachs offers one of the highest yields among one-year CDs. It provides various CD terms, including no-penalty CDs and bump-up CDs, with a minimum deposit requirement that aligns with other banks.

2-Year CD: Connexus Credit Union

• APY: 4.06%
• Minimum Deposit Requirement: $1,500
• Interest Earned with a $10,000 Deposit: $829
• Rating: 3.3 stars out of 5

Connexus Credit Union offers five share certificates in standard terms from one to five years. While the two-year CD has a strong yield, other terms have middling to low yields. The minimum deposit is slightly higher than what other CDs require.

3-Year CD: First Internet Bank of Indiana

• APY: 3.97%
• Minimum Deposit Requirement: $1,000
• Interest Earned with a $10,000 Deposit: $1,239
• Rating: 4.1 stars out of 5

First Internet Bank of Indiana offers a wide range of CD terms, all with competitive APYs. However, the minimum deposit is slightly higher than what other banks offer.

5-Year CD: Popular Direct

• APY: 4.15%
• Minimum Deposit Requirement: $10,000
• Interest Earned with a $10,000 Deposit: $2,254
• Rating: 3.5 stars out of 5

Popular Direct is an online bank and subsidiary of Popular Inc., a financial services company with over 130 years of experience. It offers CDs in eight terms from three months to five years. These CDs are geared toward serious savers due to the high minimum deposit requirement.

Key Factors to Consider When Selecting a CD

When shopping for a CD, consider the following factors:

Annual Percentage Yield (APY)

APY indicates how much interest your account will earn in a year, including compound interest. Competitive banks often offer rates several times higher than average CD rates. For example, while the average APY on a one-year CD is currently around 1.76%, some online banks offer up to 4.40% APY.

Term Length

Choose a term length that aligns with your financial goals. Lock money into a CD only if you’re sure you won’t need it before maturity. Otherwise, you may face an early withdrawal penalty. Consider when you’ll need access to the funds again, such as for a home purchase or emergency expenses. No-penalty CDs allow for early withdrawals without penalties but typically offer lower yields.

Minimum Deposit Requirement

Many CDs require a set minimum deposit, which varies by institution. Some banks, like Synchrony Bank, do not have a minimum deposit requirement, while others may ask for $500, $1,000, or even $10,000. Determine how much you’re comfortable locking away in a CD based on your financial needs.

Conclusion

Locking in a fixed-rate CD with a high yield and a term you're comfortable with allows you to benefit from that APY until the CD matures—regardless of future rate changes. Look for FDIC- or NCUA-insured institutions that consistently offer competitive rates. Consider creating a CD ladder to maintain flexibility while maximizing returns. Always evaluate the full picture, including minimum deposits and early withdrawal penalties, rather than focusing solely on the APY.