Navigating CD Maturities in a Falling-Rate Environment: Strategic Reinvestment and Asset Allocation

The Federal Reserve's ongoing rate-cutting cycle in 2025 has triggered a steady decline in certificate of deposit (CD) rates, with experts forecasting further erosion of yields. As of late October 2025, the median annual percentage yield (APY) for 6-month and 1-year CDs has fallen to 3.80%, down from 4.55% in September 2024 according to NerdWallet data. Analysts such as Christopher Hodge of Natixis CIB Americas predict a potential 25-50 basis point drop by year-end, while Steven Conners of Conners Wealth Management anticipates average rates falling to 3% or lower. This shifting landscape demands a strategic approach to reinvestment, balancing the preservation of capital with the pursuit of competitive returns.

Strategic Reinvestment: Locking In Rates and Laddering

The immediate priority for savers is to lock in current rates before they decline further. Joe Camberato, a financial advisor, emphasizes that "locking in rates now could be beneficial, as future rates may not be as attractive" according to Bankrate. For those with maturing CDs, a laddering strategy remains a cornerstone of risk management. By spreading investments across CDs with staggered maturities, investors can mitigate reinvestment risk and maintain liquidity. For example, a 12-month CD ladder allows savers to reinvest maturing funds at potentially higher rates as the Fed's rate-cutting cycle progresses.

However, laddering alone may not suffice in a prolonged falling-rate environment. Savers must also consider alternatives to traditional CDs. Promotional rates from online banks and credit unions, such as a 4.30% APY on a seven-month CD from NBKC, offer short-term opportunities. High-yield savings accounts and money market accounts, though not FDIC-insured, provide flexibility and competitive returns, with some accounts yielding over 4% APY.

Asset Allocation: Diversifying Beyond CDs

As CD rates wane, investors must diversify into other asset classes to preserve returns. Historical data from past rate-cutting cycles, such as the 2010s and post-2008 period, underscores the resilience of fixed-income investments. U.S. government bonds, for instance, have consistently outperformed equities in most rate-declining environments, according to a report by Allianz Global Investors. In 2025, short-term Treasury ETFs and Treasury Inflation-Protected Securities (TIPS) offer low-risk, guaranteed returns backed by the U.S. government.

For those seeking slightly higher yields, agency bonds from government-sponsored enterprises (GSEs) like Fannie Mae or Freddie Mac provide minimal credit risk while offering returns above Treasurys. Bond mutual funds and exchange-traded funds (ETFs) further enhance diversification by pooling various bonds, reducing individual security risk. Additionally, deferred fixed annuities, which offer tax-deferred growth and competitive interest rates, present an alternative for risk-averse investors.

Historical Lessons and Forward-Looking Strategies

Past U.S. interest rate declines, such as those following the 2008 financial crisis, highlight the importance of adaptability. During the 2010s, the Federal Reserve's quantitative easing (QE) programs and forward guidance helped stabilize markets, but savers who diversified into bonds and short-term instruments fared better than those reliant on cash. Similarly, in 2025, a balanced approach combining CDs, Treasuries, and high-quality corporate bonds can hedge against rate volatility.

Equities, while historically volatile in falling-rate environments, may still offer growth potential if the Fed's cuts succeed in maintaining positive economic growth. However, large-cap and growth stocks tend to outperform during non-recessionary rate cuts, whereas value stocks and emerging markets face greater uncertainty.

Conclusion

As CD rates continue their downward trajectory in 2025, savers must act decisively to secure current yields and diversify their portfolios. A laddering strategy, coupled with investments in short-term Treasuries, money market accounts, and high-quality bonds, provides a robust framework for navigating this environment. By learning from historical precedents and leveraging alternative assets, investors can balance safety, liquidity, and return in an era of declining rates.