Why you should open a 3-month CD this May (2024)

With persistent inflation still weighing on household budgets, many savers are on the hunt for opportunities to make their money work harder. And, while there are lots of smart account options that currently outpace inflation, including high-yield savings accounts and money market accounts, certificates of deposit (CDs) offer a few unique benefits in today's elevated rate environment.

You have a wide range of CD terms to choose from, from a few months to several years, but a 3-month CD could be an especially attractive option right now for those looking to maximize their returns while maintaining flexibility. After all, these short-term deposit accounts currently offer some of the most competitive rates available while providing a safe haven for cash.

But that's not the only reason to consider a 3-month CD in May. Here, we'll take a closer look at why opening this type of CD could be a wise move for many savers today.

See what CD accounts offer the best rates online now.

Why you should open a 3-month CD this May

There are a few good reasons why you may want to consider opening a 3-month CD this May, including:

Today's 3-month CD rates are very high

Perhaps the most compelling reason to consider a 3-month CD right now is the elevated rates many banks and credit unions are offering on these short-term accounts. As financial institutions compete for depositors' funds in today's high-rate environment, they've raised CD yields to very attractive levels.

For example, it's not uncommon to find 3-month CDs paying annual percentage yields (APYs) well north of 4% or even 5%. To put those numbers in perspective, the current national average rate on regular savings accounts is just 0.46%.

By opting for a 3-month CD over a traditional savings account, you can substantially increase your earnings potential. For example, if you invested $10,000 at 0.46% for three months, you'd earn just $11.48 in interest over that time. But if you put that same $10,000 into a 3-month CD paying 4.5% APY, you'd earn $110.65 over the same period – or about 10 times the return.

Compare today's top CD accounts and start earning more here.

Interest rates could climb soon

While recent inflation reports have shown some deceleration in price growth compared to the last couple of years, the path forward remains clouded. According to the latest inflation data, the current inflation rate is 3.5%, higher than the Federal Reserve's 2% target rate. And, if upcoming data suggests that inflationary pressures are proving stickier than expected, the Fed has signaled its willingness to continue raising interest rates to bring inflation under control.

This potential for further rate hikes could translate to even higher yields on deposit products like CDs. By opening a 3-month CD with a favorable rate now, you position yourself to start earning a high rate now and potentially benefit from those rate increases when your short-term CD matures in just a few months.

Your CD rate is locked

A key benefit that CDs have over high-yield savings accounts is that the former allows you to lock in a fixed rate for the entire term of the account. With savings accounts, rates are variable and can fluctuate at the discretion of the bank based on market conditions.

In an uncertain rate environment like the current one we're facing, this rate protection can be invaluable. While yields on savings products will likely decline if the Fed eventually shifts to cutting rates, your CD annual percentage yield (APY) will be guaranteed regardless of what happens with interest rates during the CD term.

This certainty and predictability around your return can provide valuable peace of mind, especially for more risk-averse savers. You'll know exactly how much interest you'll earn, allowing you to plan accordingly.

The shorter term allows for easy access

While longer-term CDs will guarantee your rate for a longer period, 3-month CDs strike an ideal balance between competitive yields and easy access to your funds. With such a short commitment, you'll be able to reevaluate your savings strategy and potentially capitalize on new rate opportunities in just a few months.

This liquidity can be particularly advantageous right now given the rapidly evolving economic landscape. By opting for a 3-month CD over another CD term, you won't have to worry about your money being inaccessible for an extended period if your financial circ*mstances change or market conditions shift.

And, the 3-month term allows you to reinvest the money deposited into your CD relatively quickly. So, if interest rates continue climbing, you can capture those higher yields by promptly opening a new CD or exploring other savings vehicles once your existing CD account matures.

How to find the best 3-month CD today

With the clear advantages a 3-month CD can offer in the current environment, the next step is finding the account that will maximize your earnings. These tips can help you find the most competitive 3-month CD rates:

Shop around at online banks

While many brick-and-mortar banks offer decent CD rates, you'll often find the highest yields at online banks. These internet-only institutions typically have lower overhead costs, allowing them to pass along more favorable returns to customers.

Don't overlook credit unions

Credit unions can also be a great source for high 3-month CD yields. As not-for-profit cooperatives, credit unions often pay out higher rates than traditional banks in an effort to provide the best returns for their member-owners.

Look for sign-up bonuses and promo rates

To attract new customers, some banks periodically offer promotional rates or cash bonuses on newly opened CDs. While these teaser rates may only apply for a single term, they can help boost your overall earnings, so it's worth checking for these offers before locking in a new 3-month CD.

The bottom line

With a well-researched CD strategy, this May could be an ideal time to put your money to work. And, by taking advantage of the attractive 3-month CD rates available now while positioning yourself to potentially benefit from future rate increases, you can make the most of your savings in the coming months.