Here's Why I Wouldn't Open a 3-Month CD Now

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The nice thing about CDs is that they let you lock in a guaranteed interest rate for a period. And because CD rates are high right now, it's a good time to open one.

I'm considering a CD term of 12 months or more this month, based on where rates are now. But there's a big reason I won't even consider a 3-month CD at a time like this.

Not a lot of upside with 3-month CDs

The benefit of a CD is locking in a great interest rate on your money and knowing you'll enjoy that rate for however long your CD's term lasts. But to me, it's not worth making a commitment to get a great rate for only three months.

First of all, it's hard to find a 3-month CD. Most banks have CD terms that start at six months, but 3-month CDs aren't as widely available. And if you do come across one, you're likely to find that the rate you're looking at is pretty similar to what a regular high-yield savings account will pay.

Now, it's true that with the 3-month CD, you're guaranteed your rate for 90 days, whereas that's not the case with a savings account. But since rates aren't expected to fall dramatically in the next three months, I don't see the benefit in committing to a 3-month CD. With a savings account, you might earn less interest over three months -- but probably only a touch less, to the point where it doesn't really matter to your finances one way or another.

And speaking of interest rates falling, that's likely to happen soon. The Federal Reserve is expected to lower its benchmark interest rate well before the end of the year. And the central bank's first rate cut might easily come in September during its mid-month meeting.

For this reason, I'm way more inclined to lock in a CD of 12 months or more. That way, I can continue to earn a higher rate of interest for a while as banks start lowering their rates consistently (a likely scenario given that the Fed isn't expected to cut rates once, but rather, do so continuously for a while).

And let's remember that 12-month CDs are generally offering a higher interest rate than 3-month CDs. So all told, if I'm going to open a CD right now, it's going to be for a longer term. I may even decide to go beyond 12 months, depending on my savings horizon.

Think carefully before opening a 3-month CD

A 3-month CD might seem like a low-commitment move that works for you. But before you open one, think about whether it's worth it.

It's true that interest rates are unlikely to plunge between now and the end of the year. If anything, they're likely to fall slowly and gradually. But if you open a 3-month CD now and interest rates fall a month or two later, by the time your money frees up, it may be too late to get an exceptional rate on a longer-term CD like you can today.

That said, the one scenario where a 3-month CD does make sense is if it's part of a CD ladder . Laddering is a strategy worth using when you're tying a lot of money up in CDs and want to make sure you have regular access to your cash. But if you're looking to only open a single CD, getting a 3-month CD may not give you so much benefit.

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