Is now the best time to lock in a CD rate? Experts weigh in

After another Federal Reserve rate hike this month, certificates of deposit (CDs) remain one of the best ways to get a great return on your money. Some top-earning CDs have interest rates close to 5% APY or even higher. 

But with the rate environments in flux, it can be difficult to decide when the best time to lock in a CD rate is. That's because, unlike high-yield savings accounts, CDs require you to lock in your rate when you open your account. So the APY you agree to today will be the one you earn over the entire CD term. 

As a result, timing is important. If you open your CD too early when rates are rising, you could miss out on higher interest offerings to come. But if you wait too long, rates may start to fall.

To help you navigate CD accounts today, we asked a few experts what they recommend for savers looking to choose the right time to open a CD.

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Is now the best time to lock in a CD rate?

Locking in a CD rate today could help you earn a lot of interest on your deposits. Say, for example, you put $5,000 in a one-year CD earning 5.05% APY. When the CD matures, you'll have a total of about $5,252.50 saved — a significant boost in exchange for locking your money in the account for a year.

But is it actually the best time to do so? Here are a couple of things to consider first, according to experts.

Know the rate environment

In an ideal scenario, savers could lock in a CD rate for the long term when interest rates peak. Then you'd enjoy the security of knowing you're earning that higher rate even when interest rates start to fall. 

"The key is to lock in those high rates when they reach the top just prior to the financial institutions dropping rates," says Paul Monax, CFP, founder of Agile Wealth. "But just like trying to time the stock market, it is definitely tough, virtually impossible to do for an average person, since even the experts have trouble doing so."

Nevertheless, today's high-yield CD rates are very competitive compared to other savings options and can earn multiple times more than regular CD accounts from large national banks. 

The current average one-year CD rate is just 1.54% APY, according to the FDIC — while some CDs from online banks today earn 5.00% to 5.20% for a year term or less. Even if rates do rise a bit in the future, that's still a much higher rate than you would have gotten over the last few years.

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Consider your timeline

Beyond the overall rate environment, another important thing to think about, experts say, is your own timeline.

If you have an expense coming in the next few years that you're already holding cash for, it could make sense to lock in a high rate now, says Daniel Frankel, CFP, founding principal at WealthCollab. "If we do end up getting a recession, rates could fall and you would lose the opportunity to lock in these high rates."

More detrimental than losing out on a few extra percentage points on interest would be choosing the wrong CD term and needing to pay a penalty fee to access it early. Make sure you have a goal for your money so you can determine the right term length up front. 

Luckily, some of the top-earning CDs today are shorter than in the past; many have terms of around six months to one year. 

"The rates on CDs are better than we've seen in a long time," says Andrea Oliver, CFP, owner and lead advisor at North Park Financial Planning. "If you are sure you won't need the money for the term of the CD, it might be worth utilizing if the rate is more than 0.5% above savings rates."

The bottom line

Today's CD rates can offer you the chance to boost your savings balance over the lifetime of your account. If you find a CD with a competitive rate and you have a timeline in mind already, it could be smart to lock in today's competitive rates. While it's unclear how much interest rates may rise in the future — if they do at all — CD rates are already high enough to help you yield a significant boost, no matter how much you save.

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