How to Lock in Higher Rates for Your Savings

While there may be ups and downs in any economy, savers can still maximize returns while minimizing risk. Certificates of Deposit (CDs) offer a compelling solution, especially when interest rates may be trending downward.

Here’s how CDs can help you lock in higher rates and why this strategy matters based on various economic factors.

When you open a CD, you agree to leave your money deposited in the account for a specific term, typically between nine months and five years, in exchange for a guaranteed rate of return.

This is particularly valuable when economic indicators suggest that interest rates may decline. By committing your funds to a CD before rates fall, you can continue earning the higher rate throughout the term of your CD.

Forbright Bank’s Growth CD offers an opportunity to lock in a competitive interest rate, while supporting a brighter future.

Federal interest rates may change during economic turbulence or as part of monetary policy adjustments. When that happens, financial institutions might gradually reduce the interest they pay on deposit accounts.

Consider this scenario: You have $10,000 in savings. Your savings account might offer 3.00% Annual Percentage Yield (APY). If you anticipate rates falling, you could instead lock that money into a 24-month CD at 3.00% APY. If your savings account rate subsequently drops to 2.00% APY, you’ll continue earning the higher 3.00% APY for the full two years—a significant advantage over time.

Some savers are concerned about the lack of liquidity with CDs, because the money deposited in a CD is generally inaccessible until maturity without paying an early withdrawal penalty. Some CDs like Growth CD offer the ability to withdraw paid interest before maturity, while other “no-penalty” CDs may allow access to the principal, though typically with lower interest rates. With any type of CD, a CD ladder strategy improves liquidity while still taking advantage of higher rates.

A CD ladder involves dividing your savings among multiple CDs with staggered maturity dates. For example, you might split $10,000 into five CDs, investing $2,000 in each one with terms of nine months, 12 months, two years, three years, and five years. As each CD matures, you can choose to reinvest it into a new CD or access the funds if you need them. This approach provides regular liquidity while still maintaining potentially higher average returns compared to a savings account.

High-yield savings accounts offer immediate access to your money. For example, Growth Savings includes unlimited transfers with no fees. However, with a high-yield savings account, the interest rate might change at any time. On the other hand, your CD rate remains constant.

If you’re trying to lock in high rates for your savings and you don’t expect to need access to the money for a while, a CD is ideal. However, if you need to be able to withdraw funds on shorter notice, a high-yield savings account may be the best option. Often, depending on your financial situation, it may be best to keep some amount of funds accessible in a high-yield savings account, and deposit what you feel comfortable with into a CD.

If economic indicators suggest falling interest rates, you may be able to boost overall returns by proactively moving some funds from flexible savings accounts to CDs wherever able. The certainty of a fixed rate provides not only potentially higher earnings over time, but also peace of mind, as you’ll know exactly how much interest you’ll earn over the term, regardless of market fluctuations.

Consider using both a CD and a high-yield savings account to maximize your savings strategy with Forbright Bank’s Growth CD and Growth Savings account.

Disclaimer: This article is for general information and education only. It should not be considered financial or tax advice.