How to Lock in CDs Before Interest Rates Decrease
As interest rates fluctuate in the financial market, Certificates of Deposit (CDs) are a popular investment choice for those seeking stability and guaranteed returns. With reports of interest rates being subject to change beginning in mid-to-late 2024, opening or renewing CDs before rates decrease can be a strategic move to lock in higher yields. Fifth Third Bank explores the importance of locking in interest rates by opening a new CD or renewing an existing one.
What’s a Certificate of Deposit (CD)?
A Certificate of Deposit is a type of savings account that holds your money for a set amount of time. In exchange, your bank pays you a fixed annual percentage yield (APY), making CDs a safe, reliable way to grow your savings until your CD term ends.
However, you cannot withdraw money from your CD until it matures (otherwise you’ll be charged a fee). These terms generally range from three months to 10 years. Once your CD reaches maturity, you have the option to receive your principal investment along with the interest the CD has earned or renew the CD to a new term and interest rate.
Benefits of Saving with a CD
The best time to open a CD is when interest rates are expected to decrease in the near future. According to CBS News, rates are expected decrease in 2024 and continue into 2025 based on current inflation and the Federal Reserve likely reducing its benchmark rate. Aside from locking in a strong interest rate for your CD, there are other benefits, including:
- Maintain a stable and secure investment. CDs are known for their fixed interest rates, which means you'll lock in a high rate & stable savings, even if the Fed decreases rates.
- Preserve your initial investment while continuing to earn interest on your savings.
- There is no limit to how many certificates of deposit (CDs) you can have. In fact, holding multiple CDs can provide a steady stream of ongoing returns.
- Save for emergencies or large purchases. By opening multiple CDs with different maturities, you can ensure a portion of your funds will be available for the unexpected every time one of them matures.
The benefits sound pretty good, right? If you’re ready to open a Certificate of Deposit, schedule an appointment with Fifth Third Bank to get started.
How to Open a Certificate of Deposit
A Certificate of Deposit is a simple yet effective way to save and grow your money with low risk. Many banking customers use CDs to get a jumpstart on saving for college, supplement retirement income, diversify investments, and start an emergency savings fund.
If a Certificate of Deposit sounds like the right account for you, here’s how to open a CD:
- Find your local Fifth Third Bank branch and make an appointment to open a CD.
- Gather personal information, including your legal name, address, date of birth, and social security number.
- Choose the type of CD you’d like to apply for by reviewing account details, such as term length and interest rates.
- Decide the amount of your initial deposit when opening your CD.
- Watch your CD earn interest throughout your term length.
- Redeem your funds or renew your CD by visiting your local branch.
CD Interest Rates (And How They Impact Your CD)
Certificate of Deposit interest rates are the annual percentage yields (APY) banks offer to CD account holders.
What’s an interest rate? Interest rates reflect the amount of interest you will earn in one year from your original balance. Meanwhile, Annual Percentage Yield, or APY, reflects the amount of compound interest you will earn in one year, which includes both interest earned from your original balance and interest earned from accumulated interest throughout the year.
Understanding CD interest rates is essential, as they directly impact the potential returns and overall profitability of your CD investment.
Similar to mortgage rates, savings rates, and credit card interest rates, CD rates exhibit a strong correlation with the federal funds rate. It’s important to shop around for the best interest rates to ensure your account has optimal growth opportunities. See current CD rates here, or calculate projected returns at various terms and rates with our Certificate of Deposit (CD) Maturity Calculator.
How to Renew a Certificate of Deposit
Renewing an existing Certificate of Deposit (CD) once it matures is a straightforward process with a few options, including renewing the CD or withdrawing funds.
If you'd like to renew your CD and continue taking advantage of promotional rates, you can pick any of the active promotional terms for your renewed CD. If you'd like to withdraw the funds to use elsewhere, schedule an appointment to come into a branch.
Fifth Third Bank has a 10-day grace period during which the CD holder can choose to renew their CD, withdraw funds without penalty, or explore other options. Many banks will renew a CD — a process often referred to as an automatic rollover — if account holders do nothing within the 10-day grace period. During the automatic rollover process, your bank will deposit funds into a new CD with the same term length and standard interest rate.
Pro Tip: Generally, you shouldn’t let CDs automatically renew. It’s usually better to compare current promotional rates to find the right CD for you.
By following these steps, you can successfully open a Certificate of Deposit and begin earning interest on your savings in a secure and predictable manner.