Why Investors Should Lock in 4.18% APY on Short-Term CDs Before 2026 Rate Cuts

The Federal Reserve's ongoing rate-cutting cycle has created a rare window of opportunity for savers and investors. As of late 2025, short-term Certificate of Deposit (CD) rates have surged to historic highs, with institutions like Citibank offering a compelling 4.18% APY on 3-month CDs. However, this window is closing fast. With the Fed signaling further reductions in 2026, locking in these rates now is a strategic move to preserve capital and outpace the inevitable decline in yields.

The Current Landscape: High Rates, But for How Long?

Short-term CDs are currently outperforming traditional savings accounts by a wide margin. While the national average for 12-month CDs hovers at 1.68%, niche offerings from banks and credit unions have pushed 3-month CD rates to as high as 4.18% APY. This divergence reflects the Fed's aggressive rate hikes in 2024 and early 2025, which artificially inflated savings yields. But as the central bank pivots to a more accommodative stance, these rates are poised to contract.

The Fed's 2026 Outlook: A Clear Path to Lower Rates

The Federal Reserve's December 2025 Summary of Economic Projections (SEP) paints a definitive picture: the median forecast for the federal funds rate at year-end 2026 is 3.4%. This represents a 35-basis-point reduction from the current 3.50%–3.75% target range according to the Federal Reserve. Analysts, including Goldman Sachs, project an even steeper decline, with the terminal rate likely settling between 3% and 3.25% by late 2026.

The Fed's rationale is twofold. First, inflation, though still above 2%, has shown signs of moderation. Second, the labor market is cooling, with unemployment rising to 4.1% in November 2025. These trends justify a dovish pivot, but they also mean savers who delay locking in current rates will face a shrinking pool of high-yield options.

Strategic Rate Locking: Timing Is Everything

The key to capitalizing on today's rates lies in timing. Short-term CDs-particularly those with 3- to 6-month terms-allow investors to "lock in" current yields before the Fed's cuts fully materialize. For example, a 3-month CD with a 4.18% APY will mature in early 2026, just as the first wave of rate reductions takes effect. By then, new CD offerings will likely reflect the lower rate environment, eroding returns for those who wait.

This strategy is especially potent for risk-averse investors. Unlike bonds or equities, CDs are FDIC-insured (up to $250,000 per institution), making them a near-risk-free hedge against the Fed's tightening cycle. Moreover, the early withdrawal penalties for short-term CDs are typically less severe than those for longer-term products, reducing the opportunity cost of accessing funds if needed.

Where to Lock In 4.18% APY: Citibank and Beyond

Citibank's 3-month CD offering at 4.18% APY is currently one of the most competitive rates in the market.

. While the bank's other short-term CDs (e.g., 4-month and 5-month terms) lag at 0.05% APY, its 9-month and 15-month CDs offer 4.30% APY for balances under $100,000 according to Bankrate. For investors seeking alternatives, Northern Bank Direct's 6-month CD at 4.15% APY and Alliant Credit Union's 3-month CD at 4.10% APY provide similarly attractive options.

Conclusion: Act Before the Window Closes

The Fed's 2026 rate cuts are not a question of if but when. With short-term CD rates peaking in late 2025, investors have a narrow window to secure high yields before they become a relic of the past. By locking in 4.18% APY on a 3-month CD today, savers can shield their capital from the inevitable decline in interest rates while leveraging FDIC insurance to mitigate risk. The time to act is now-before the Fed's scissors cut the strings of today's record-high yields.