Here's Why I'm Glad I Didn't Open a CD Before the Fed Cut Interest Rates

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When the Fed announced a 0.50% rate cut on Sept. 18, it was a surprise to many people who had expected a smaller reduction in interest rates. The Fed cutting rates by 0.50% is good news for anyone who recently opened a certificate of deposit (CD) -- that's because if you opened a CD before the Fed's rate cut, you could have locked in a higher APY than might be available today.

But I didn't open any CDs in 2024, and I'm not planning to now. In fact, I'm glad that I didn't. I had other plans for my cash savings, and CDs are too restrictive and low-key risky for my financial goals.

Here are a few reasons why I have no regrets about missing out on opening a CD.

1. I love having freedom for how to use my savings

Here's the biggest problem with CDs: early withdrawal penalties. Yes, the best CDs sometimes pay higher APYs than the best savings accounts. But CDs have a built-in risk -- if your financial plans change and you need to pull your deposit out before the end of the CD term, you have to pay a penalty.

I don't believe the higher yields of a CD are worth losing the freedom and flexibility of how to use your savings. Early withdrawal penalties are a painful added cost. Most Americans only have a few thousand dollars in the bank (the typical American's bank account balance is $8,000), and therefore they likely don't have much cash for emergencies. You shouldn't use a CD for emergency savings or for any money that you might need tomorrow, next month, or maybe even this year.

2. Alternatives to CDs are still offering high APYs

Yes, if I had found the perfect timing and out-maneuvered the Fed, I could have opened a 12-month CD before the Fed rate cut and locked in a 0.50% higher APY than I could get today.

But how much of a difference does that really make? Let's say you have $10,000 to put into a CD. Earning an extra 0.50% APY only amounts to an extra $50 on that money after one year. Is getting an extra $50 worth locking up your cash and risking a loss of interest income due to early withdrawal penalties? I say no!

There are alternatives to CDs with pretty high APYs, like high-yield savings accounts and money market accounts. Some of the best savings accounts , even after Fed rate cuts, are paying 4.50% to 4.85% APY. Those yields are about 10 times better than the national average savings account's rate, and you don't have to lock up your cash for a specific length of time.

3. Fed rate cuts could be good news for other investments

Beyond CDs and savings accounts, the Fed rate cuts could be good news for other areas of your financial life. If you own stocks and bonds, the Fed rate cuts could be the start of more economic growth, higher stock market returns, and higher bond prices. (Bond prices tend to go up when interest rates go down.)

In the few days since the Fed announced the 0.50% rate cut, my investment portfolio went up by a lot more than I would have made from even the best CDs. There are no guarantees in investing, of course -- the stock market and bond market can go up or down at any time for complex reasons.

But even if you missed your chance to lock in a high-yield CD, the Fed rate cuts may create other opportunities to keep saving, investing, and building wealth.

Bottom line

Don't feel bad if you missed your chance to open a CD before the Fed's 0.50% interest rate cut. Yes, the best CDs and savings accounts might soon have lower APYs as a result. But Fed rate cuts could bring good news in your investment accounts, the job market, and other areas of the economy that affect your everyday life.

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