2 CD account types to avoid this week (and 2 to open right now) (2024)

Considering the state of the economy and the elevated interest rates financial institutions currently offer on deposit accounts, you may consider opening a certificate of deposit (CD). Some experts expect interest rates to fall soon with recent inflation reports showing cooling price growth in the United States. And, with the next inflation report expected July 11, now may be the time to act.

Since CDs are fixed-rate savings vehicles, you can use them to lock in today's high rates. And, depending on the type of CD account you open, you can lock in those rates for months or even years to come.

But, while opening a CD may be a good decision in today's economic climate, these accounts aren't all equal. In fact, there are a couple of types of CDs you should avoid this week. Find those, and a few that you should open, below.

Lock in today's high returns with a long-term CD now.

2 CD account types to avoid this week (and 2 to open right now)

Given the current interest rate environment, one in which short-term CDs pay more than their long-term counterparts, you may be tempted to choose short-term options. But, those are precisely the CDs you should probably avoid right now.

"I would favor a longer-term CD vs. shorter-term CDs, due to the current economic environment," explains Al Faber, CFP, senior wealth advisor at the financial planning firm, Woodson Wealth Management. "The Federal Reserve has indicated that they are more likely to decrease short-term rates, rather than increase rates in the next year or two." And, short-term CDs don't lock in today's high interest rates for long enough.

Here are some specific CD terms you should avoid this week:

3-month CDs

3-month CDs can be enticing at the moment. Some leading accounts offer APYs over 5%. But, opting for one of these accounts could be a bad idea. If you open a 3-month CD this week, your account will mature in October. And, unless you want to be penalized, you'll need to leave your money in the account until then. But, that could pose some interest rate risk.

Recent reports showed cooling inflation in the United States. And, if that cooling continues, the Federal Reserve could cut interest rates soon. If that happens before your CD expires, and you plan on rolling your money into another account, you may be forced to accept a lower interest rate on your savings at that time.

Opt for long-term CDs over their short-term counterparts now.

6-month CDs

6-month CDs may pose more interest rate risk than their 3-month counterparts. Many experts argue that the Federal Reserve will cut interest rates at least once this year. And, if you opt for a 6-month CD this week, your account won't mature until January 2025.

So, if these experts are right, and you opt for a 6-month term, the risk of having to renew your CD at a lower interest rate than currently available rates upon its maturity is high. So, you shouldn't let the high returns these accounts provide coerce you into opening one right now.

2 CD account types to open right now

Although opening a short-term CD, like one with a 3-month or 6-month term, should be avoided now, long-term CDs are appealing ways to save.

"A long-term CD will continue to earn interest at the locked-in rate for a longer period without being affected by decreases in interest rates, giving you a stable ROI," explains Aaron Cirksena, founder and CEO of the financial planning firm, MDRN Capital.

Here are two CD account types you should consider opening immediately:

3-year CDs

Today's leading 3-year CDs offer APYs as high as 4.60% or higher. Since CDs come with fixed interest rates, taking advantage of a 3-year term means you'll earn today's high rates for years to come. In fact, if you opened one of these accounts today, you'd be locking in today's strong returns until July 2027.

5-year CDs

Returns on 5-year CDs are impressive, too. Some financial institutions currently offer APYs as high as 4.80% on these long-term savings vehicles. And, if you open one today, it won't mature until July 2029.

Since interest rates are cyclical, and the current upward cycle seems to be ending, a 5-year CD can help you lock in today's returns at their peak and enjoy them regardless of what happens with rates over the next half-decade.

Open a 5-year CD to lock in today's rates now.

The bottom line

The Federal Reserve is expected to cut interest rates relatively soon. So, short-term CDs, like those with 6-month terms or shorter can be risky. When they mature, you may need to accept lower rates on future savings vehicles. Instead, opt for long-term CDs, like those with multiple-year terms, as these lock in today's high rates for years. Compare today's leading long-term CDs here.