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Published: May 09, 2024 3 min read
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Many certificates of deposit, or CDs, are still offering yields of at least 5% — for the short term, that is.

Putting money in a short-term CD with a 5% annual percentage yield, or APY, is currently an easy way to beat inflation, making it an attractive option for anyone with cash they can set aside for a few months. However, your options are quickly changing.

Between last fall and this spring, the number of CDs with APYs of at least 5% remained mostly steady, but there was a shift in the term lengths of these high-rate CDs, according to CD Valet, an online marketplace that tracks rates from thousands of financial institutions. In March, 62% of CDs with APYs of 5% or higher had short-term lengths: a significant increase from a share of 46% that did in October 2023. (The site defines “short-term” as less than 12 months.)

As CD Valet wrote in a quarterly report, "Life is short, and so are the highest-rate CDs." The site also noted that 55 of the 100 highest-rate CDs have term lengths of less than a year.

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CDs remain attractive as the Fed holds rates

Americans have plenty of valid reasons to be unhappy about interest rates, which the Federal Reserve has held steady as it waits for indications that inflation is firmly under control. The housing market is slow, car loans are unaffordable, credit card and personal loan rates are sky high, stocks have been impacted... the list goes on.

But surging rates on savings products like CDs have been one of the bright spots for consumers. When interest rates are high, it's expensive for banks to borrow money from each other, so they offer high rates to attract customer deposits.

Short-term CDs in particular have the best rates at the moment because banks and credit unions are anticipating the Fed is preparing to cut interest rates, possibly starting later this year. Savers typically lock in their rates when they buy CDs, so financial institutions have to set their long-term CD rates based on expectations of where rates are headed (down).

"As a result, savers can find the most attractive CD rates in short-term maturities," CD Valet wrote in the report. "There are more high-rate, short-term CDs than there were six months ago."

It's relatively easy to find a short-term CD with a rate of at least 5%. By comparison, median rates are about 3% for CDs with term lengths between three and five years.

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