The Federal Reserve recently cut its benchmark interest rate for the first time since early 2020, and in many cases, banks have lowered their interest rates on high-yield savings accounts, money market accounts, and CDs. However, it’s important to note that while CD rates tend to move in the same direction as the Fed’s interest rate decisions, they aren’t directly linked, and some banks have clearly chosen not to lower their CD rates just yet.
Although the yield you can earn from a CD ladder is generally lower than it was before the Fed started cutting rates, it is still rather high on a historical basis. In this article, we’ll compare some of the top CD interest rates on our radar from before the Fed’s rate cut with the currently available rates.
If you’re looking to start a CD ladder, there’s no time like the present, as the Fed is set to cut rates several times in the next few years. Check out the best CD rates right now.
CD ladders: Then and now
Shortly before the Fed announced its interest rate cut, I wrote an article about how much one could make with a hypothetical CD ladder by simply using the CD rates available from some of our favorite online banks at the time.
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Here’s how the top CD rates before the rate cut compare to what is currently available:
| CD Term | Top Interest Rate Before Fed Rate Cut | Top Interest Rate Now |
|---|---|---|
| 1 year | 5.00% | 4.30% |
| 2 years | 4.60% | 3.90% |
| 3 years | 4.25% | 3.90% |
| 4 years | 4.15% | 3.85% |
| 5 years | 4.00% | 3.40% |
| Average rate | 4.40% | 3.87% |
Data Source: The Ascent’s Top CD Rate Page. Pre-Fed rates are from Aug 20, 2024, and current interest rates are from Oct. 16, 2024. Excludes brokered CDs.
To be sure, there are plenty of banks you can use to construct a CD ladder, and if you’re willing to hunt for the best possible rate, you might be able to do significantly better than the rates in the chart. But the point is that after the Fed cut its benchmark rate, CD interest rates certainly moved downward. However, an overall yield of nearly 4% from a newly-constructed CD ladder is still rather high when compared with recent historical CD yields.
Is it still a good time to start a CD ladder?
The short answer is yes. You can still set yourself up with an excellent income stream with a CD ladder, especially if you have enough money to take advantage of CDs with high minimum deposit requirements.
To be sure, the charts above only show a sampling of CD rates available from some of the most well-known online banks. Some have minimum deposit requirements, and some may have other drawbacks, such as limited ways to deposit and withdraw money, poor customer service ratings, and more. In many cases, the best fit for you might not be the absolute highest-yielding CDs.
However, the bottom line is that a CD ladder is a strategy that is designed to produce a strong level of income in any climate by rolling all your money into longer-maturity CDs over time. And there are some excellent opportunities to do so, while still taking advantage of elevated short-term interest rates.