The Single Best CD Strategy for Making Money With CDs in September

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Have you noticed that a lot of people are interested in opening CDs these days? Well, there's a good reason for that.

Today's CD rates are some of the best ones savers have ever seen. And you have plenty of options for locking in a 5% APY, which is a great deal given that with CDs, you don't risk losing money like you do with stocks.

But if you're thinking of opening a CD this September, you need to be strategic. And it's equally important to understand what's going on with interest rates in general, so you can make an informed decision.

Today's CD rates may not last

CD and savings account rates are so attractive right now because the Federal Reserve's benchmark interest rate is sitting at a 23-year high. But once the Fed starts cutting rates, CDs and savings accounts are likely to start paying less.

That's not such bad news, though. Rate cuts from the Fed should also translate to less expensive borrowing for people who need auto loans, mortgages, or credit cards . But it's important to know that interest rates on a whole could start to fall pretty soon.

The Fed is next scheduled to meet on Sept. 17 and 18. And economists' general consensus is that the Fed will announce its first rate cut of 2024 at that time.

What's more, the Fed is likely to continue cutting rates beyond September's meeting now that the pace of inflation has slowed. And while CD rates aren't expected to plummet overnight starting in mid-September, in the coming months, they could slowly but steadily continue to drop.

So if you have money to put into a CD on hand now, you may want to open one before mid-September. However, you also don't necessarily want to chase the highest rate available today.

It pays to think long-term

You'll generally find a better rate on a 12-month CD today than with a longer-term one, like a 48- or 60-month CD. But if you're saving for a medium-term goal, then you may want to think about locking your money up for four to five years instead of just one.

You may have to settle for a 4% APY on a 48- or 60-month CD, as opposed to getting 5% on a 12-month CD. But remember, we don't know where interest rates will be in a year from now. And they may end up much lower than where they are today. By limiting yourself to a 12-month CD, you're taking the risk of losing out on interest income on a whole over the next few years.

Of course, perhaps you're only looking to tie your money up in a CD for a year because you expect to use that cash in late 2025 for something specific. In that case, a 12-month CD is obviously your best choice.

But let's say you're expecting your child to attend college in five years. Investing your education fund in stocks is a bit risky at this point, since you don't have much time to ride out a major market downturn. For a situation like this, a 48- or 60-month CD is a great way to guarantee a certain amount of growth on your savings, and also guarantee that your money will be available to you when you need to use it.

Consider a CD ladder

That said, rather than put all of your money into a 48- or 60-month CD, you may want to set up a CD ladder for more flexibility. A CD ladder has you dividing your deposit into several smaller ones and opening a series of CDs with staggered maturity dates. The goal is to give you access to your cash at different times, since withdrawing a CD early generally results in a costly penalty.

If you have $10,000 you're looking to put into a CD, you can divide it into five CDs worth $2,000 apiece with the following terms:

• 12 months
• 24 months
• 36 months
• 48 months
• 60 months

This way, you'll have access to a portion of your money every year in case your plans change. But either way, if you know for sure you're saving for a goal that's further out, then it pays to lock in a longer-term CD this month to guarantee yourself a great rate for many years. If you limit yourself to a 12-month CD this September, you might regret that choice if interest rates fall more sharply than expected over the next year or so.

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