Mid-2022 is Just Not the Time to Buy Certificates of Deposit

My inbox is full of two types of emails from readers of BestCashCow and RatesAndInfo.com, a BestCashCow subsidiary.

The first is from those who are excited to have found a great CD rate, and the second is from those who are inquiring whether this is the time to lock into a short-term or long-term CD.

I understand the excitement. Interest rates have been stuck at zero for 24 months due to Fed Chairman Jerome Powell’s mismanagement of Fed policy during the pandemic. While inflation has burned, people have become accustomed to making no more than half a percent in their savings accounts. And, they are now seeing 1-year online CD rates as high as 1.50%, 3-year CD rates above 2%, and 5-year CD rates pushing 2.50%. In some areas, local CD rates are even higher.

Check local 1-year CD rates here.

Check local 3-year CD rates here.

Check local 5-year CD rates here.

I wrote a year ago that folks should not be locking into long-term CDs when interest rates are so close to zero. In an environment where they are still low and projected to go up dramatically in the immediately future, they should be avoiding not just long term CDs, but short term ones as well.

The Fed is about to play some serious catch-up in order to try to get inflation under control. It is going to raise the Fed fund rate by 1%, possibly more, between now and June 15, some six weeks away. Online savings rates by then should be above 1.50%.

The Fed is projected to raise the Fed funds rate by another 1% through quarter point hikes at each of its four remaining meetings in the second half of the year. It could easily raise the benchmark rate by more to get inflation under control (although it also could be influenced, again, to refrain from moves ahead of an election). Even if the Fed is does not follow through, certificate of deposit rates are not offering a premium which prices in the likelihood of these moves.

Inflation - especially against the backdrop of a global war, a continued pandemic and an expanding environmental catastrophe - can be very persistent. It is anybody's guess as to whether and how the Federal Reserve may need to take further action into 2023.

I personally would continue to monitor and compare online savings rates as rates increase through the remainder of 2022. You should also check local rates where you live.

And, then at the end of the year, I would begin to look at CDs, but I’d expect to see all CD products well above where they are today.