CD rates are coming down. Here’s where you can lock in yields of nearly 5% for 2 years

Published Tue, Jan 16 20242:43 PM ESTUpdated Tue, Jan 16 20243:28 PM EST

The higher yields income-seeking investors can earn on cash are beginning to dry up as banks pull back on attractive rates for certificates of deposit. Banks have begun scaling back on the annual percentage yields they offer to customers parking their cash in CDs. Bread Financial recently cut the annual percentage yield on its 2-year CD to 4.8%, a decline of 10 basis points, while Sallie Mae similarly lowered its APY to 5.25% on a 1-year CD, down from 5.35%. The Federal Reserve's interest rate hikes starting in March 2022 led to a sharp runup in yields on Treasurys. Rates on a range of otherwise plain vanilla investments also rose sharply, with money market funds offering yields exceeding 5%, and some banks boosting their CD yields to lure deposits. The higher yield windfall on cash is largely over, analysts say, especially with the Fed penciling in three rate cuts in 2024. The interest rate futures market is even more aggressive, pricing in six quarter-percentage-point rate decreases by the end of the year . "We believe the pace of [net interest margin]/deposit pricing pressure will gradually decelerate from here, with banks continuing to reduce offer rates for new CDs in light of the forward curve pricing in as many as six cuts by the end of the year," wrote Morgan Stanley's Betsy Graseck in a report earlier this month. That also means investors who want to lock in today's yields — and do so over the longer term — are running out of time. See below for a table of longer-term CD yields and where you can get them. A trade-off of yield and liquidity Though banks can adjust their rates on savings accounts any time, CD rates are generally locked in for the life of the instrument. There's also a trade-off: You can collect this higher yield, but you'll have to be comfortable with reduced access to your money. Savers can suffer a penalty equivalent to several months' worth of interest if they "break" the CD ahead of its maturity. By locking in an 18-month or 24-month CD, savers can benefit from today's higher yields well after the Fed begins dialing back rates. Ally Financial, for instance, now offers a 4.95% rate on its 18-month CD, down from 5.15%. Even though the rate is off its high, it's still a sharp improvement from the 0.7% yield the CD was paying in March 2022. Sallie Mae, which paid an annual percentage yield of up to 5.25% on its 2-year CD in early December, has since cut the yield to 4.9%. Stashing some of your idle cash into a longer-dated CD may make sense to avoid reinvestment risk and to continue earning interest. However, these rates on cash won't keep up with inflation over the long run, and their returns almost always lag the market for stocks and bonds longer term.