RESIST THE CALL OF CALLABLE CDs

INTEREST rates on bank certificates of deposit are much higher than they were at the start of this decade. Even though the Federal Reserve has hiked its short-term federal funds rate 11 times since 2022, the average one-year CD yields 2%, according to Bankrate.com.

- JOHN WAGGONER

Woo-hoo. Sure, 2% is much more than 0.76%, the average CD rate in January 2020. Nevertheless, at current rates, it would take 36 years to double your money, and that doesn’t even take inflation into account.

Moreover, the next move in the Fed’s benchmark interest rate is likely lower, not higher. Although the Fed says it will be patient until uncertainty clears about the strength of the economy and the ramifications of new trade tariffs, Wall Street traders expect the rate-cutting cycle that began in late 2024 to resume later this year.

So shopping for better CD rates now makes sense. You can even have your broker search for better rates for you. In some cases, you can get higher yields through a callable CD, a type of CD that gives the issuer the right to redeem it before it matures. But make sure you understand that CDs, including callables, can have good and bad features.

Locking in. A basic CD is fairly simple. You invest a certain amount with your bank for a set period of time, and the bank pays you interest. If you take out money before the CD matures, you'll have to pay a penalty. Those penalties vary from bank to bank, but they typically range from three to 12 months’ interest—three months for a one-year CD and 12 months for longer maturities, particularly five-year CDs.

CDs typically offer higher rates than bank money market accounts. Smart savers can use CDs to lock in those higher rates for months or years. Others use CDs to save for goals in the near future—and to make sure they don’t spend the money instead.