It's time to move to longer-term CDs

Benjamin Franklin's face on $100 bill

Interest rates are expected to fall with the leaves, so now is the time to lock in your return with longer-term CDs.

Over the past couple of years, the best deals have been on short-term deposits. Smart savers took full advantage of six-month CDs that paid 5% to 5.5%, repeatedly renewing for a better rate than they could earn with longer CDs.

But recently a growing number of one- and two-year CDs have begun offering the same top-notch returns.

That's fortunate because most economists are predicting the Federal Reserve Bank will give the economy -- especially the struggling mortgage industry -- a boost by pushing interest rates lower over the next few months.

There's a growing consensus that we'll see a quarter-point drop in September, followed by another quarter-point decline in December.

If that's what late '07 has in store for us, locking in a good rate for a longer term makes sense.

Our CD rate comparison charts show you where to find the best-paying CDs.

We found more than 40 one-year CDs paying a 5% or more APY -- the annual percent yield includes interest on the interest you earn. Three-dozen banks are paying that same great rate or more on two-year terms.

Don't be surprised to find online banks offering some of the very best rates. If you're unsure about using them, check our advice on how to get started with an online bank. We'll take you through the process step-by-step.

We wish we could guarantee the very profitable CD rates we've been enjoying will last through the end of the year. But we can't.

The financial and housing markets are in turmoil because so many homeowners -- particularly those with poor credit and expensive adjustable-rate mortgages -- are defaulting on their loans.

Those losses have panicked many of the big institutional investors that provide billions of dollars a year for home loans, resulting in a dramatic drop in the amount of money available for mortgages.

With home sales and prices already falling in many parts of the country, economists warn that tight credit could be the final straw that pushes the economy into a recession.

The Fed can prevent that because it acts as the nation's super bank, lending money to all the commercial banks we deal with every day. When the Fed lowers rates, banks can borrow the money they need for consumer loans more cheaply.

That allows them to charge less for loans such as mortgages, which encourages us to borrow and spend more. This keeps the economy growing since two-thirds of our gross domestic product depends on consumer spending.

Unfortunately for savers, such a move also allows commercial banks to pay less for deposits -- such as CDs.

Let's be clear: No matter what the experts say, there's no guarantee the Federal Reserve will cut rates over the next few weeks.

But the housing crisis is serious enough that it's impossible to imagine higher rates anytime soon.

Savers who lock their money up in longer-term CDs run little risk of missing out on higher rates this winter or even next spring.

That's why we think the smart move is to put your money in one- or two-year CDs. That way your savings will continue to earn a good rate no matter what the Fed decides to do.