Why August 2024 Is a Great Time to Open Your Next CD

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Opening a certificate of deposit (CD) is a big commitment. You're putting a sum of money into the bank and are basically cutting off access to it unless you're willing to take a penalty for an early withdrawal. That's why it's important to make sure you're ready for a CD before you dive in.

But if you've been waiting a while to open your next CD, you may want to take action in August. Not only are CD rates currently sitting at record highs, but August could end up being your last opportunity for a while to snag such a fantastic rate.

Why it pays to open a CD this month

CD rates have been strong for a while now, so you may not feel the need to rush into opening one in August. But you should know that the reason CD rates have been strong is that the federal funds rate, the Federal Reserve's benchmark interest rate, is sitting at a 23-year high following a series of hikes in 2022 and 2023.

The reason the Fed raised interest rates in 2022 and 2023 was to combat soaring inflation. But now that inflation has cooled to a large degree, the central bank is making plans to start cutting its benchmark interest rate.

The Fed's next opportunity to do that is during its Sept. 17–18 meeting. And based on a recently released jobs report that contained disappointing news (including a jump in the unemployment rate), it's becoming more likely that the Fed will, indeed, take rate-cut action in September.

Once the Fed moves forward with its first rate cut, CD rates could start to fall pretty quickly. So could savings account rates, for that matter. This doesn't mean that CD rates will plunge overnight, so there's no need to panic if opening a CD is on your radar but you won't be ready to do it for a good number of months.

But by late September, 5% CDs may no longer be available (or as widely available). So if you want that 5% CD, August is the time to sign up.

Make sure you're set for emergencies first

While it pays to open your next CD in August and not beyond that if you can help it, before you tie any money up in a CD, you'll want to make sure that you have enough money in a regular savings account to cover three full months of essential bills. That's the minimum you should be aiming for in the context of your emergency fund.

Remember, taking an early CD withdrawal can lead to a penalty of a few months' interest. The exact penalty you'll face will depend on your CD term and bank -- check the fine print for the account you're considering to see how much you can expect to pay.

It's silly to tie up money you might need for emergencies in a CD and risk that penalty. So if you're not sure you can afford to part with your money, don't. Instead, leave it in regular savings, where you can still earn a nice amount of interest.

But if you're confident you're all set as far as your emergency fund goes, then you might as well open your next CD in August while rates are at a high.

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