Should Savers Lock In High CD Rates Before Further Fed Cuts?

The Federal Reserve's December 2025 rate cut and its forward guidance have created a pivotal moment for savers evaluating Certificate of Deposit (CD) strategies. With the Fed signaling a cautious path of further reductions in 2026 and 2027, the question of whether to lock in current high CD rates before yields decline has become urgent. This analysis examines the interplay between Fed policy, current CD rates, and strategic timing to determine the optimal approach for yield preservation.

Fed's Rate Cut Trajectory and Economic Outlook

The Federal Open Market Committee (FOMC) executed a 25-basis-point rate cut in December 2025, lowering the federal funds rate to a target range of 3.5% to 3.75%. This decision, though contentious-with dissenting votes from officials like Governor Stephen Miran advocating for a larger cut-reflects the Fed's balancing act between inflation control and economic growth. The FOMC's "dot plot" projects one additional rate cut in 2026 and another in 2027, with the long-run target converging to 3%. Median GDP growth forecasts of 1.7% for 2025 and 2.3% for 2026 suggest a moderate economic expansion, but risks to the dual mandate of employment and price stability remain a key constraint on aggressive easing.

Current CD Rates: A Window of Opportunity

As of December 2025, average CD rates for 12-month terms stood at 1.63%, with a cap of 2.38%. However, by January 2026, competitive banks like Edward Jones began offering one-year CDs with an Annual Percentage Yield of up to 4.25%, a stark contrast to the average. This divergence highlights the importance of timing: savers who delay locking in rates risk missing out on these elevated yields as the Fed's rate cuts begin to filter through to bank products.

The projected downward trajectory of the Fed Funds rate-already down 75 basis points in 2025-will likely pressure CD rates lower in 2026. For example, 24-month CDs averaged 1.41% in December 2025, but analysts warn that these rates could erode further as banks adjust to the Fed's accommodative stance. Savers who lock in current high rates, particularly in the 12- to 24-month range, may secure returns that outpace future offerings.

The Fed's forward guidance provides a clear signal for strategic action. With only one projected rate cut in 2026, savers have a narrow window to capitalize on current rates before yields contract. A laddering strategy-spreading investments across CDs with staggered maturities (e.g., 6-, 12-, and 24-month terms)- can mitigate the risk of being locked into declining rates while maintaining liquidity to reinvest at higher yields as they emerge.

For savers with a longer time horizon, 36-month CDs currently average 1.33%, but these rates are unlikely to remain competitive as the Fed's rate cuts take full effect. Conversely, shorter-term CDs (6- to 12-month) offer the flexibility to reset positions in a lower-rate environment, albeit with the trade-off of lower initial yields. The key is to align maturity terms with the Fed's projected timeline: locking in rates before the 2026 cut, for instance, could preserve a 4.25% APY that may shrink to 3% or below by mid-2026.

Conclusion: Act Before the Window Closes

The Fed's December 2025 rate cut and its forward guidance create a compelling case for savers to act swiftly. While the average CD rates in December 2025 appear modest, the emergence of competitive rates in early 2026- such as 4.25% on one-year CDs-underscores the urgency of locking in yields before further reductions. Given the projected trajectory of rate cuts and the FDIC's regulatory framework, savers who delay risk accepting significantly lower returns. A disciplined approach-leveraging laddering and prioritizing shorter-term CDs-can optimize yield preservation while remaining agile in response to evolving monetary policy.