Over the past 17 months, the Federal Reserve has consistently increased interest rates, which now are hovering between 5.25 to 5.50%. The current interest rates are the highest they’ve been since 2001, and there may be future increases in the following months.
Most lenders tie their credit offerings to the Fed’s rates and add basis points according to their policies and the borrower’s credit risk. As a result of increased interest rates, consumers find it more challenging to pay off their credit cards, and the cost of mortgages is rising, pricing some people out of the housing market.
While the Fed’s actions can make it more expensive to borrow money, there is a silver lining. People with cash on hand can lock in favorable savings rates through a high APY (Annual Percentage Yield) CD (Certificate of Deposit)*. Here are three reasons why a high-APY CD can benefit your wallet.
1. Guarantee High Savings Rates for Months
You may earn some interest if you have money stashed away in a savings account. However, most savings account interest rates are variable, meaning they’ll go up or down whenever the Fed modifies them.
When you put your money in a high-APY CD, you’ll lock in your rate for the CD’s duration. You won’t need to worry about interest rates falling, and you’ll know exactly how much your CD will earn by the end of the term.
2. Maximize Your Interest Rates
Traditional savings account rates are much lower than other investment products, like CDs. According to the Federal Deposit Insurance Corporation (FDIC), the average interest rate on consumer savings accounts is just 0.43%.
With a high-APY CD, you can secure much higher savings rates on your deposits. Since CDs require your commitment to keep the money in the account for an agreed-upon time, banks can offer higher interest.
3. CDs are Safe Investments
The FDIC insures your deposits up to $250K, providing you purchase your CD account through an FDIC-insured institution such as Western Bank. Unlike other investment options like stocks, you won’t need to worry about losing your money.
The safety of CDs makes them attractive to investors who don’t want to worry about market volatility. You can pursue a CD investment strategy to guarantee your returns or mix it up with other investment options if you’re okay with some risk.
4. Consider CD Laddering
Some consumers use CD laddering to guarantee returns over lengthier periods. In a laddering strategy, investors purchase multiple CDs with varying maturity dates, ensuring they can access money at different times or simply reinvest it to continue their gains—which can also help avoid penalties for early withdrawals.
Since the Fed may continue to raise interest rates over the next few months, you could purchase both a 6 and 12-month high APY CD now. If rates increase in six months, roll over your CD to take advantage of higher rates.
Get Started Today
If you want to explore high-APY CDs, look no further than Western Bank. We offer several CD options that can put your money to work. Call us today, or stop in at your local branch.
*APY=Annual Percentage Yield. Minimum balance required. Fees may reduce earnings on the account. A penalty will be imposed for early withdrawal. See a Western Bank customer service representative for rates and further information.