Federal Reserve Cuts Fed Funds Rate to Zero to 0.25%, Buy 1-Year CDs Now
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Federal Reserve Cuts Fed Funds Rate to Zero to 0.25%, Buy 1-Year CDs Now

The Federal Reserve has made its second emergency rate cut in a little over a week, cutting the Fed Funds rate by a full 1% to a range of zero to 0.25%, in order to address the unprecedented economic slowdown caused by Coronavirus.   

On March 3, 2020, the Federal Reserve made an emergency cut to the Federal Funds rate by 50 basis points to a rate of 1.00% to 1.25%.   Our advice at that time was to buy 1-year CDs and this advice was reiterated a week ago when 1-year CD rates were at or just over 2%.

I get multiple inquiries every day from readers inquiring about long-term CD rates.   Even though BestCashCow is the most comprehensive source of these rates, neither I nor anyone who works here would recommend the panicked move of locking into a 5-year CD here.  At this point, it is the unanimous belief of even the most conservative medical professionals that Coronavirus will not be with us for more than another 18 months.   We are likely to see inflation after it passes.  Against that backdrop, a five-year CD seems like too far of a reach here.  Plus, for comparison purposes, 5-year CDs were at 2.30% to 2.50% the last time that the Fed Funds rate was at zero, and you are not being rewarded with rates that high right now.

In fact, you are not getting any premium in 5-year CDs over 1-year CDs at the moment.

Since savings and money market rates are likely fall over the coming week to 10 days in response to today's cut, we’d continue to strongly recommend locking into 1-year products.   It is just about securing the growth, however small, of your money for the next year.

The best online savings and money market rates are here.

The best online 1-year CD rates are here.   You should also consider 1-year rates at local banks here, and 1-year rates at credit unions here.

If you think you may need to access your principal over the next 12 months, you should opt for No Penalty CDs.   These products will not offer the same yields as one-year CDs, but they may still enable you to lock in a rate of return until we get to the other side of this challenging time. 

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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