The 5 Compelling Reasons to Buy CDs in May 2024

By
Kelvin Ejeta
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With CD rates soaring to levels not seen in over a decade, the month of May 2024 presents an exceptional window to lock in stellar returns on low-risk certificates of deposit before interest rates potentially start declining again. Explore these 5 key motivations for why investing in a CD this month could be a wise financial move.

Compelling Reasons to Buy CDs in May 2024

Key Takeaways

  • CD rates have spiked, with top offers exceeding 5.30% APY for terms under 1 year
  • Short commitment periods allow savers to take advantage of peak rates without tying up funds long-term
  • CD returns currently outpace inflation, preserving purchasing power without volatility
  • CD laddering enables higher long-term yields while maintaining liquidity
  • Banks are promoting limited-time high CD rates requiring quick action

5 Compelling Reasons to Buy CDs in May 2024

As financial landscapes evolve, savvy investors are constantly seeking opportunities to optimize their portfolios. In May 2024, Certificates of Deposit (CDs) present a particularly compelling option for investors looking to secure stable returns while minimizing risk. Here are 5 Compelling Reasons why

CD Rates Are Soaring Above 5%

Perhaps the biggest driver for buying a CD right now is the ability to capture phenomenally high interest rates that have been unheard of for well over a decade. According to the latest data:

  • The top nationally available 6-month CD rate is 30% APY from CommunityWide Federal Credit Union
  • Multiple banks like Bread Savings are offering 1-year CD rates over 5.25% APY
  • Highly-rated options for locking in 4.20% to 4.55% APY are available for 2 to 5-year CD terms

After years of CD yields stuck below 1%, today’s rates are simply unparalleled. And crucially, based on guidance from the Federal Reserve, we may be nearing the peak of this current interest rate cycle. With the central bank expected to start cutting rates later in 2024 to combat still-high (though slowing) inflation, the window to capitalize on these sky-high CD returns could be closing soon.

Lock In Top Rates With Short-Term Commitments

In an unusual move driven by economic uncertainty, many banks are currently offering their most attractive rates not on long-term CDs, but on shorter commitments under 1 year. This pricing structure creates a rare opportunity to capture premium returns while avoiding having your funds locked away for an extended period.

Examples of stellar short-term CD rates in May 2024 include:

  • 30% APY on a 6-month term from CommunityWide Federal Credit Union
  • 25% APY on a 12-month CD from Bread Savings
  • 50% APY on an 18-month certificate from Synchrony Bank

With rates that high available from top-rated banks and credit unions without requiring multi-year commitments, parking your cash in a short-term CD could be an exceptional short-term use of funds you want to keep safe and growing.

As the rate environment evolves, banks may move away from this favorable short-term CD pricing model. Taking advantage now, before that structure changes, could allow optimizing your return without sacrificing liquidity long-term.

Outpace Inflation With Risk-Free CD Returns

After over a year of alarmingly high inflation rates, March 2024 data finally showed Consumer Price Index growth cooling to a still-elevated 3.5%. And with the Fed’s aggressive rate hikes, it appears that inflation may continue moderating throughout 2024.

However, with CD rates from top banks and credit unions eclipsing 5%, certificates of deposit offer a rare opportunity to actually outpace inflation while taking on virtually zero risk. When you factor in the safety of CD accounts being insured by the FDIC for up to $250,000, it creates a beautiful scenario compared to:

  • Volatile stock markets and cryptocurrencies that have seen huge losses amid Fed rate hikes
  • Savings accounts and money market funds with lower yields
  • High-risk speculative investments needed to beat 5% returns

Locking in a 5%+ rate on an insured CD could allow your money to maintain and even grow its purchasing power without the anxiety and risk that comes with chasing higher potential returns. For preserving capital during uncertain times, CDs may be an optimal choice.

Build a CD Ladder for Flexibility

While capturing today’s impressive CD rates is enticing, some savers may be hesitant to tie up all their funds for an extended period, in case they need some of that money relatively soon. A popular solution is to construct a CD ladder.

A CD ladder involves:

  1. Dividing your total deposit across multiple CD accounts with varying maturity dates
  2. Reinvesting money from maturing CDs into new top-yielding certificates
  3. Maintaining access to a portion of your savings as each CD matures on a rolling schedule

For example, let’s say you have $10,000 to save and want to build a 5-year ladder. You could open:

  • $2,000 in a 1-year CD at 5.25%
  • $2,000 in a 2-year CD at 4.20%
  • $2,000 in a 3-year CD at 4.40%
  • $2,000 in a 4-year CD at 4.55%
  • $2,000 in a 5-year CD at 4.55%

Then as each CD matures, you reinvest in a new 5-year certificate, capturing higher long-term rates while having funds available each year.

EverBank offers an excellent CD ladder setup, with rates spanning 3.95% for a 3-month term up to 5.05% for 5 years. Building a ladder allows enjoying today’s high yields, maintaining liquidity, and optimizing for changing future rate environments.

Promotional CD Deals Offer Limited-Time Incentives

Finally, in an effort to attract new depositors and lock in higher-yield investment dollars, some banks are marketing special promotional CD rates outside their standard term offerings. These “bonus” rates can be even higher than normal but usually come with a shorter availability window and additional requirements.

For example, Consumers Credit Union is promoting CDs at up to 5.00% APY on terms from 91 days to 5 years right now, which may require higher minimum opening deposits. First National Bank of America also periodically offers enhanced “special” CD rates that can exceed even their already competitive standard certificates.

These limited-time promotional CD deals can disappear quickly, either on a set schedule or once the bank achieves its target deposit levels. Acting rapidly when these unique opportunities arise could allow capturing premium yields before they vanish.

Keeping an eye on bank promotions and bonus offers during these high-rate periods, savers can potentially squeeze out even more value from their CD investments. However, you’ll need to monitor them frequently and be ready to open accounts quickly before availability expires.

Capitalize on Rare CD Rates Before They Drop

In conclusion, the month of May 2024 stands out as an exceptional time to put funds into a certificate of deposit and lock in interest rates reaching historic highs. With options to capture 5%+ returns in just 6-12 month commitment periods, beat inflation while taking on virtually no risk, build CD ladders for flexibility, and capitalize on banks’ limited-time promotional offerings – the reasons to invest in a CD this month are plentiful.

However, with the Federal Reserve expected to start easing interest rates downward later this year in efforts to tame inflation, this window of opportunity for such stellar CD deals may not remain open for much longer. Getting your money into one of these top-yielding CD accounts ASAP could be a wise choice to take advantage of while the lucrative rates last.

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