CD Rates Are About to Drop. Lock In 4.45% APY Today

Thinking about opening a certificate of deposit? You’re not alone, especially if you’re just starting your savings journey. According to a new survey by Santander Bank, 74% of Gen Z is interested in locking in a CD before rates decline.

There’s not much time left, though: All signs point to a reduction in the federal funds rate when the Federal Reserve meets on September 16 and 17.

When that happens, returns on CDs decline, almost immediately. That’s because the Fed cuts the Federal funds rate, which dictates the interest financial institutions charge each other when borrowing to meet their reserve requirements.

When the Fed raises its benchmark rate, it costs banks more to borrow and they require more customer deposits to fund operations. That’s when the Annual Percentage Yield (APY) on CDs is most lucrative. There’s less need for reserves if the Fed cuts rates, so CD yields take a tumble.

With the next Fed announcement scheduled for Wednesday, there’s little daylight before the next likely rate drop.

Bread Financial is still offering up to 4.45% APY on six-month CDs, the best rates we’ve been able to confirm. And while it has a $1,500 minimum opening deposit requirement, the online bank doesn’t charge a monthly maintenance fee.

You can earn up to 4.00% APY with Discover Bank, and its terms range from 3 months to 10 years.

Some 1-year CD rates are still hovering at or are slightly above the 4% mark, but there were better deals on the market 12 months ago. That’s because many banks and credit unions are already gearing up for a Fed rate cut, according to Elliot Pepper, director of tax at Northbrook Financial.

In a Sept. 11 Reuters survey of more than 100 economists, the vast majority expected a 50-basis-point reduction by the end of 2025. If that happens, we could see a 4% return on a 1-year CD replaced by 3.5% as the new standard. If the fed fund rate drops by 75 basis points, we could be looking at returns of 3.25% in 2026

• Are you comfortable leaving the cash untouched? Traditional CDs typically come with early withdrawal penalties if you decide to access funds before the maturity date. If you’re concerned, consider a no-penalty CD. The rates will be slightly lower, but you’ll have peace of mind.
  
• Consider building a CD ladder. A CD ladder allows you to spread out cash over multiple term lengths. For example, instead of putting $10,000 in a 1-year CD, you might spread that money across a 6-month CD, a 9-month CD, a 1-year CD and an 18-month CD. With this approach, you’ll be able to access some of the funds on a regular basis with the flexibility to pursue other savings and investing strategies.
  
• Steer clear of bump-up CDs. Some banks and credit unions are still offering bump-up CDs, which allow you to increase your fixed rate if a higher one becomes available. That may sound appealing, but there’s no sign that rates will increase in the foreseeable future.

At CNBC Select, we work with experts who possess specialized knowledge and authority gained through years of training and real-world experience. For this story, we interviewed Elliot Pepper, a financial planner and the director of tax at Northbrook Financial in Baltimore.

At CNBC Select, our mission is to deliver high-quality service journalism and comprehensive consumer advice to our readers, enabling them to make informed financial decisions. Every banking article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content independently of our commercial team and any outside third parties and pride ourselves on maintaining high journalistic standards.

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