3 reasons you should open a long-term CD before the August inflation report

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If you've been thinking about CDs because of the current high CD interest rates, you may want to make your decision and get started in the next few weeks.

The US Bureau of Labor Statistics updates the Consumer Price Index (CPI) every month. Also known as the inflation report, the index tracks price trends for everyday goods, which determines the inflation rate.

The July 2024 consumer price index showed a year-on-year decline in inflation to 2.9% (it was 3.0% in June). If the August report – due out on September 11, 2024 – shows the same trend, it could have a big impact in the coming months.

1. There is a good chance that the Fed will cut interest rates

The Federal Reserve meeting is scheduled for September 17 and 18, 2024.

At this meeting, one of two things will happen:

1. Prices are being reduced

2. Prices remain the same

If the inflation numbers for August are good, many people believe that the Fed will cut interest rates by at least 0.25% at this meeting. Some even think a cut of 0.50% is possible.

However, this is not a given. Many experts believe that the Fed will wait to cut interest rates until inflation is closer to 2.0%. But no one knows for sure.

2. Interest rates are unlikely to improve

No matter what the Fed decides to do, the preferably-The best scenario for CD rates is that they stay the same. Because while no one agrees on what the Fed will do, may everyone agrees that interest rates are not high.

In other words, if you were hoping for higher interest rates, I wouldn't hold your breath.

Even if the Fed does nothing, banks may still interpret a strong CPI for August as a sign of interest rate cuts to come. (The Fed's stated goal is an inflation rate of 2.0%.) Some may want to get a head start and cut their rates preemptively.

3. The sooner, the better for compound interest growth

The magic ingredient for compound interest is time.

The sooner you start compounding your money, the more it will grow overall. If you know you want to use CDs to grow your savings, why give up that extra time for growth?

If you are not sure, at least open a savings account

Now is a good time to open a CD if you're sure you want to do that, but it's not necessarily something you can undo if you change your mind.

Most CDs have penalty fees if you withdraw your funds before the CD matures. At the low end, these eat up some – rather than all – of your interest. However, some CDs have penalty fees that can even Rector.

A high-interest savings account could be a good compromise. While you can't set your interest like you can with a CD, you can still Moneyeither.

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