2023 has turned the cash-rich into the cash-richer. Interest rates are at 22-year highs, helping savings accounts and money market funds offer annual risk-free returns of up to 5% APY.

But rate cuts are coming — and soon, savers will be making less interest on their money. But there’s a way they can keep today’s rates longer: by purchasing a Certificate of Deposit (CD), which is like making a risk-free loan to the bank. In exchange for locking your capital up for a specified period, they will give you a more competitive, fixed interest rate.

• CD rates have grown 10x since the Fed’s rate hike campaign in March 2022 — with one-year CD rates reaching a decade-high of 1.85% in Nov. 2023.
• High-yield CDs from online banks like Barclays and Alliant Credit Union are offering even more, with CDs ranging from 6-60 months and yielding as high as 5% APY.

Should you stay (in cash) or should you go?

Today’s CD rates won’t beat the S&P 500’s ~9.3% average annual return (or its 19% return this year), but they’ll beat inflation — an enticing offer for cash-flush Americans seeking diversification or those fearful of the market’s volatility.

But these rates won’t last forever:

• High-yield CD rates grew rapidly when the Fed started its hikes in March 2022 but tapered off in 2023 — with only three CD terms seeing rising rates in Oct. 2023.
• Many CDs with yields up to 6.5% APY have disappeared or reduced their terms in recent weeks, a sign of how short-lived they are.

Risk-on or risk-off? With rates expected to decrease, investors face a tough decision: lock in that yield or bet on an S&P 500-linked ETF like the SPDR S&P 500 ETF Trust (NYSE:SPY) continuing to outperform. For the extra bullish, a Nasdaq 100-linked ETF like the Invesco QQQ (NASDAQ:QQQ) could be an option — up 47% this year and just 3% away from its all-time high.