Preparing for CD account maturity in July: Steps to take

Preparing for CD account maturity in July: Steps to take

In the current economic climate, savers with Certificates of Deposit (CDs) maturing in July 2025 face a challenging decision. With the Federal Reserve maintaining its federal funds rate at its July meeting, CD rates have taken a downturn from their previous highs. Here's what savers need to know and consider when it comes to reinvesting their maturing CDs.

The Federal Reserve's decision to hold the federal funds rate steady in 2025, following three cuts the previous year, has resulted in a decline in top CD rates. After peaking above 5-7% in 2023-2024, the best CD rates have now dropped to around 4.49% Annual Percentage Yield (APY) on six-month CDs. The national average one-year CD yield currently stands at about 2.03% APY, while competitive banks offer up to 4.40% APY on one-year CDs.

Given this interest rate landscape and the Fed's outlook for future cuts, savers must approach the reinvestment of their maturing CDs strategically. Since these CDs likely locked in higher rates in previous years, reinvesting now could mean accepting a lower yield unless savers shop around for the best offers.

The Fed's rate pauses and expected future cuts suggest that CD rates may not rise significantly in the near term and may even trend lower. As a result, it's essential for savers to consider several strategies to maximise their returns and minimise risk.

1. Shop Around for the Best Rates: Rates vary considerably, and the top 4.49% APY for short-term CDs is better than many national averages. Look for banks offering competitive rates rather than settling for your current bank’s renewal offer.

2. Consider Specialty CDs for Flexibility: Bump-up CDs allow one rate increase during the term if rates rise, while no-penalty CDs let you withdraw early without penalty if rates drop or better options appear, offering flexibility in a potentially declining rate environment.

3. Build a CD Ladder: Spread your investment across multiple CDs with staggered maturities (e.g., 6 months, 1 year, 2 years). This approach balances access to funds and potential for higher rates in the future, reducing risk from locking in rates at the wrong time.

4. Evaluate Alternative Low-Risk Savings Vehicles: High-yield savings accounts and money market accounts currently offer competitive yields above 4% APY and offer greater liquidity than CDs. These can be effective short-term places to park cash if you anticipate rates dropping or want easy access.

5. Align Your Strategy With Your Financial Goals: CDs remain useful to protect savings from inflation effects and to earmark funds for planned purchases within five years. If you do not need immediate access, longer-term CDs with slightly higher yields can be considered, but monitor Fed moves closely.

In summary, given the current lower CD rates, savvy savers should favour flexibility and diversification through specialty CDs and laddering, shop for the highest available rates, and consider liquid alternatives like high-yield savings accounts. Locking in now may be beneficial to avoid further rate declines, but maintaining some liquidity and flexibility is prudent given the expectation of more Fed easing.

1. Given the decline in top CD rates and the Fed's outlook for future cuts, it's crucial for savers to shop around for the best offers when reinvesting their maturing CDs, as rates vary significantly.
2. For those seeking flexibility in a potentially declining rate environment, considering specialty CDs such as bump-up CDs or no-penalty CDs could provide the necessary flexibility.
3. Building a CD ladder by spreading investments across multiple CDs with staggered maturities can help balance access to funds and potential for higher rates in the future, reducing the risk of locking in rates at the wrong time.

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