If You're Going to Open a CD, Do It Now

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Making a weekly to-do list helps me stay organized given my hectic schedule. And that list typically consists of work-related and non-work tasks. Every Monday morning, I sit down to review that list and prioritize to-do items. And the first thing I did this week was open a certificate of deposit (CD).

If you have money you're thinking about putting into a CD, you may want to make that a priority this week as well. If you wait much longer, you could end up getting stuck with a lower interest rate -- and less money in your pocket.

Why I opened a CD this week -- and why you should act quickly, too

There's a reason I made a point to open a CD this week. Next week, the Federal Reserve is scheduled to meet on Sept. 17 and 18. During that meeting, the Fed is expected to lower its benchmark interest rate for the first time in years.

As a reminder, the Fed spent much of 2022 and 2023 raising interest rates in its attempt to slow inflation. And thankfully, the Fed's efforts have paid off. Living costs have been rising at a much slower pace this year than in 2022 and 2023.

But there's a downside to higher interest rates: higher borrowing costs. While people with money in the bank are benefiting from higher CD and savings account rates, people with credit card balances and those who need to sign loans are suffering. So there's a lot of pressure on the Fed to move forward with interest rate cuts now that inflation has slowed.

However, while the Fed's anticipated upcoming rate cut is beneficial to borrowers, savers may have to soon say goodbye to the days of 5% CD rates. While CD rates aren't expected to plunge overnight following the Fed's upcoming announcement, they're likely to drop slowly but steadily in the coming months -- especially because the Fed is likely to cut interest rates repeatedly. So if you have the cash on hand for a CD, you should open one now rather than wait.

Make sure a CD is right for you

While I'd definitely recommend opening a CD before the Fed's first rate cut, I'll also caution you to do some thinking before putting money into a CD. There's the risk of an early withdrawal penalty for removing your money before your CD's maturity date. That's something you don't want.

Before you open your next CD, make sure you're all set as far as your emergency fund goes. And make sure you don't have any upcoming expenses you might need the money for.

If your older car has been giving you trouble, you can't assume you won't have to either make a large repair or put down money on a new one soon. And sure, you can potentially tap your emergency fund for something like that. But make sure there's enough cash in there in case that needs to happen.

Open your CD strategically

You may also want to consider a CD ladder this month instead of putting all of your spare cash into a single CD. If you have $5,000 to deposit, instead of opening a 12-month CD, which is probably where you'll get the best rate, you may want to open four CDs worth $1,250 apiece with the following terms:

• 3 months
• 6 months
• 9 months
• 12 months

Or, you may decide to instead open a 6-month CD, 12-month CD, 18-month CD, and 24-month CD. It depends on your specific needs and goals.

The nice thing about a CD ladder is that it gives you access to some of your money on a more frequent basis. That could lower your chances of getting hit with an early withdrawal penalty. And, frankly, it could ease your mind a bit knowing you'll have regular access to your cash.

I'm happy that I opened a CD this week to get ahead of next week's highly anticipated Fed announcement. If your situation allows for the same, then I'd encourage you to compare CD rates now and open one before you end up stuck earning less interest on your money.

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