Will long-term CDs still be worth opening this October?

Certificates of deposit have long been a safe investment, but they’ve become a more attractive one in recent years as CD rates surged. CD yields were driven up by repeated increases in the federal funds rate as the U.S. Central Bank sought to get decades-high inflation under control. 

The Federal Reserve has now issued its first rate cut in four years, though, so the days of CD rates above 5.00% may soon be numbered — and long-term CDs especially have already begun to see yields decline.  

Amid this backdrop, some investors may be wondering if it’ll be worth committing to lock up money for the duration of a CD term. If you’re undecided about whether long-term CDs will still be worth opening this October, it helps to weighs the pros and cons now.

Start by seeing how high of a CD rate you could still earn here now.

Will long-term CDs still be worth opening this October?

With the Federal Reserve’s rate cut, CD yields in October likely will be down from their recent peak. However, rates may still be competitive in historical terms, so it may be worth seizing the opportunity to lock in before yields fall further. 

“Locking in a CD at current rates might allow you to secure a higher yield before rates decline, making it a good option for those seeking stable, guaranteed returns,” advises Douglas A. Boneparth, a Certified Financial Planner, financial advisor, and president of Bone Fide Wealth, LLC. “With the likelihood of lower rates on the horizon, longer-term CDs become more appealing as they protect you from the risk of earning less on other savings products like high-yield savings accounts or money market mutual funds.”

Domenick D’Andrea, AIF, CRC, CPFA, financial advisor, and Co-Founder of DanDarah Wealth Management, agrees long-term CDs will be a good buy in October for investors looking to lock in before additional rate cuts. He believes the Fed will likely reduce rates at each of the next two meetings. Acting before that occurs makes good sense. “I believe at least for the next three months long-term CDs should still be a viable option, as part of a plan” he advises.

Learn more about your best long-term CD options online today.

What about the alternatives?

While there’s a case to be made that long-term CD rates will still be competitive enough in October that they’ll be worth buying, that doesn’t make them the right choice for everyone.

“Deciding whether to invest in CD depends on your financial situation, goals, and risk tolerance,” advised Kelley Leix, Senior Vice President, Client Deposit Services at Merchants Bank. “Securing a CD could allow you to benefit from current higher rates for an extended period. However, short-term CDs may offer the best opportunity, as banks are currently providing higher rates on short-term CDs to attract deposits in a competitive market.”

Leiz explained that banks are hesitant about offering long-term CDs at high rates with the expectation of impending rate cuts, so there may be more opportunities to be had elsewhere. “By focusing on short-term CDs, investors can remain competitive without the risk of being locked into high rates during periods of economic uncertainty.”

D’Andrea also warned that there’s a serious downside to long-term CDs for some investors. “The biggest concern is reinvestment risk,” he said. “You will most likely not see rates this high again any time soon. If you need this dollar amount to generate specific monthly income, you should start looking at other options.” 

Leiz also suggested alternatives such as a traditional savings account for more liquidity or a money market account for liquidity and high rates, although she warned these are both variable rate options so yields could decline as the Fed cuts rates. For those who owe money, on the other hand, she suggests focusing on debt payoff could be the best solution. 

“Paying down debt can be a wise choice, especially when the interest rate on your debt is higher than the savings rate, allowing you to manage and reduce liabilities more effectively,” she said. 

The bottom line

Ultimately, you’ll need to consider your own goals and needs to make your choice, which D’Andrea suggests working with a financial advisor to do. You may find long-term CDs are right for you to hold onto October’s rates for years longer, or may decide a different option is best given your goals.