Are CDs Worth It Right Now? Here's What Experts Say | Bankrate (2024)

Certificates of deposit, or CDs, offer you a chance to keep your cash safe from loss of principal — and potentially earn a higher yield than what you’d get with a savings account.

With a CD, you commit to keeping your money locked up for a set amount of time, and the bank or credit union often rewards you by paying a higher yield than that of a standard savings account. The flipside, however, is that you could end up paying penalties and fees if you withdraw your money early.

Before you incorporate CDs into your investment strategy, here are a few things to keep in mind.

While still high, CD rates have dipped and may drop further in 2024

Among CD terms Bankrate monitors between six months and five years, top annual percentage yields (APYs) have declined slightly — by an average of 0.32 percent — since mid-December.

While leading rates have dipped, they remain elevated, overall. APYs of 5 percent or above can still be found on common terms of up to 18 months, while slightly lower rates are available on terms between two years and five years.

The slight rate decreases have occurred as banks anticipate the Federal Reserve lowering its key benchmark rate yet in 2024.

What a Federal Reserve rate cut would mean for CD investing

To combat high inflation, which peaked at an annual rate of 9.1 percent in June 2022, the Fed raised rates a whopping 5.25 percentage points between March 2022 and July 2023. This brought the federal funds rate to a range of 5.25-5.5 percent, which is its highest level since 2001.

Yields on competitive CDs and savings accounts tend to follow the federal funds rate. Overall, APYs on competitive CDs are currently at their highest in over a decade.

However, deposit account yields won’t stay so high forever. Economists expect the Fed to begin modestly cutting rates in September, as the inflation rate has been easing but hasn’t yet hit the Fed’s goal of 2 percent.

Most CDs require you to lock in your funds to earn a fixed APY, which is guaranteed to remain the same throughout the CD’s term. Securing a high fixed APY can benefit you if the going rates drop on new CDs.

“With a Fed interest rate cut looming as soon as September, now is the time to lock in CDs,” says Greg McBride, CFA, Bankrate chief financial analyst. “There is no incentive to wait as yields will trend lower as we get closer to an interest rate cut and even more so once the Fed actually starts cutting rates.”

Pros and Cons of investing in CDs

Pros

  • Potentially higher yield than savings accounts
  • Principal remains protected
  • Guaranteed rate of return
  • Possibility of adding long-term stability to a portfolio with a CD laddering strategy

Cons

  • Money isn’t as liquid as in a savings account
  • May face penalties for withdrawing money early
  • Yields don’t always beat inflation
  • Returns are often low compared to stocks and ETFs

When investing in a CD is worth it

One of the biggest reasons to use CDs is for security. You don’t have to worry about losing your principal because the money is usually held in an insured account.

For those looking to keep a portion of their portfolio in a principal-protected investment for the long term, using a CD laddering strategy — in which your CDs mature at different points — can be one way to add stability.

CDs can also be useful to save for the short term — six to 18 months. Locking up some of your money in a CD can help keep you from dipping into your funds for other purposes and ensure the money goes to the proper goal, says Morgan Blackman, wealth coach, investor and founder of Holistic Bucks Coaching based in Ontario, Canada.

When investing in a CD is not worth it

While CDs can provide some guaranteed returns over time and some level of security, they’re not likely to provide you the returns needed to build wealth for retirement over time. Instead, it might make more sense to build wealth with other assets and only use CDs for a portion of your portfolio.

Additionally, CDs might not be worth it if you need more access to your savings, since there’s typically a penalty for withdrawing the money early. For example, if you’re building an emergency fund, avoid keeping that fund in a CD. It’s better to store your emergency fund in a savings account, where you can withdraw the money whenever it’s needed.

Alternatives to CDs in 2024

While some CD rates are currently outpacing the rate of inflation, you might decide it’s best not to lock up your funds. Or, you might choose to diversify your funds among CDs and other types of investments.

These options include Treasury Inflation-Protected Securities (TIPS), which provide some protection against inflation while being fairly safe. The effective interest rate paid on TIPS moves up or down, along with inflation.

“Consider low-risk mutual funds as well,” says Blackman of Holistic Bucks Coaching. “They aren’t as risky as stocks, but they can still yield better returns than CDs.”

Fred Jacobs, senior manager, media relations and sponsorships at Ent Credit Union, Colorado’s largest credit union, suggests looking into money market accounts and mutual funds, as well as bonds and dividend-paying stocks.

Finally, another option that might make sense is a fixed annuity. If you already have a large chunk of capital and are looking for something stable, a fixed annuity might provide better returns than a CD. These contracts, typically made with an insurance company, guarantee a certain amount of income for a set period.

“The most important factors to consider are your risk tolerance and how potential returns compare among CDs, stocks, bonds, mutual funds and other products that would provide you with a rate of return for your money,” Jacobs says.

Bottom line

As part of a portfolio that includes cash, CDs can provide stability and security. However, CDs are unlikely to provide you with the returns you need to build wealth for the future or live off the interest — unless you already have a large amount of money and ladder your CDs to avoid penalties.

Additionally, CDs lack the liquidity you’d need for something like an emergency fund. To recession-proof your finances, it’s important to establish an emergency fund in a savings account before focusing on other investments.

“I recommend speaking with a financial advisor to compare your options,” Jacobs says. “Discuss your risk tolerance and timelines, and determine the best products for your individual situation.”

— Former Bankrate writer René Bennett contributed to a previous version of this story.

Are CDs Worth It Right Now? Here's What Experts Say | Bankrate (2024)

FAQs

Are CDs Worth It Right Now? Here's What Experts Say | Bankrate? ›

While still high, CD rates have dipped and may drop further in 2024. Among CD terms Bankrate

Bankrate
Bankrate is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for featured placement of sponsored products and services, or your clicking on links posted on this website. This compensation may impact how, where and in what order products appear.
https://www.bankrate.com › about
monitors between six months and five years, top annual percentage yields (APYs) have declined slightly — by an average of 0.32 percent — since mid-December.

Are CDs worth buying right now? ›

If you don't need access to your money right away, a CD might be a good savings tool for you in 2024 while average interest rates remain high. CD interest rates are high in 2024 — higher nationally, on average, than they've been in more than a decade, according to Forbes Advisor.

Is it worth putting money in CD? ›

Is it worth putting money into a CD? For some people, it can be worth putting money into a CD. If a person is seeking a riskless investment with a modest return, CDs are a good bet—you'll earn a higher rate than you would with a checking or savings account, but you'll have to commit your funds for a fixed period.

What is the biggest negative of putting your money in a CD? ›

The biggest disadvantage of investing in CDs is that, unlike a traditional savings account, CDs aren't flexible. Once you decide on the term of the CD, whether it's six months or 18 months, it can't be changed after the account is funded.

Why should you deposit $10,000 in a CD now? ›

Today's CD rates are still high

One of the most compelling reasons to put $10,000 into a long-term CD investment now is the current state of interest rates. CD rates remain at levels we haven't seen in years, and many financial institutions are offering rates of 4% to 5% or more on their long-term CDs.

What is a good rate for CDs right now? ›

Right now, the best CD rates range from 4.65% to 5.51% APY, which is much higher than what CD rates were just two years ago.

How much will a $500 CD make in 5 years? ›

This CD will earn $117.15 on $500 over five years, which means your deposit will grow by 23.4%.

Are CDs worth money? ›

Absolutely! Although streaming and digital music are the most popular ways to listen these days, lots of people prefer the collectable nature and superior sound quality of CDs. This demand means that the vast majority of CDs are still worth something - and the amount you can make soon adds up!

How much does a $10,000 CD make in a year? ›

Earnings on a $10,000 CD Over Different Terms
Term LengthAverage APYInterest earned on $10,000 at maturity
6 months2.53%$127.17
1 year2.57%$260.05
18 months2.18%$332.10
2 years2.09%$426.48
3 more rows
Aug 8, 2024

Why doesn't Dave Ramsey like CDs? ›

Ramsey warned that you shouldn't invest in CDs because average rates won't keep pace with inflation and because they aren't a good place to grow your money. He suggests investing in mutual funds instead.

Can you ever lose money in a CD? ›

The risk of having a CD is very low. Unlike how the stock market or a Roth IRA can lose money, you typically cannot lose money in a CD. There is actually no risk the account owner incurs unless you withdraw money before the account reaches maturity.

Are money CDs safe if the market crashes? ›

Even if the market crashes, your CD is still safe. Your interest rate won't change, and your money is still insured. But, keep an eye on interest rates. After your CD term ends, you might find that new CDs have lower rates if the economy is still struggling.

Why should you deposit 5000 in CD now? ›

You're guaranteed to earn hundreds of dollars

But an 18-month CD with a deposit of $5,000 can do just that. Whether you lock in a rate of 4.50%, 4.75%, 5.00%, or somewhere in between those ranges, you'll earn upwards of $300 in interest once the account has matured.

Is it smart to put money in a CD now? ›

Bottom line. While we don't yet officially know when, and by how much, interest rates could drop in 2024, it's safe to say we've reached peak savings rates today and now is the time to lock one in with a CD. Subscribe to the CNBC Select Newsletter! Money matters — so make the most of it.

Do you pay taxes on CD interest? ›

Key takeaways. Interest earned on CDs is considered taxable income by the IRS, regardless of whether the money is received in cash or reinvested. Interest earned on CDs with terms longer than one year must be reported and taxed every year, even if the CD cannot be cashed in until maturity.

What is a good amount of money to put in a CD? ›

Don't put cash into a CD that you'll need for emergencies. Many CDs have a minimum deposit amount, usually around $500. Don't put more in a CD than you feel comfortable parting with.

Why should you put $5000 in a 6 month CD now? ›

While longer-term CDs may tie up your funds for years, a 6-month CD allows you to access your money relatively quickly. If you suddenly need your $5,000 for an emergency or a more lucrative investment opportunity arises, you won't have to wait years to access your funds without incurring hefty penalties.

Why should you put $15000 into a 1 year CD now? ›

In summary, a certificate of deposit gives you steady and safe returns. Investing $15,000 in a CD could lead to substantial gains, regardless of the CD's length. However, make sure you won't need that money while the CD is active because withdrawing early usually incurs hefty penalties.

Are CDs good to buy during a recession? ›

When you invest in a CD while rates are high, you'll keep your higher rate regardless of nationally-falling rates. However, if rates start to rise, you could get stuck with lower rates. During a recession, many investors put money in CDs to lock in rates or earn stable returns.

Are CDs worth anything anymore? ›

Is it worth selling CDs? Absolutely! Although streaming and digital music are the most popular ways to listen these days, lots of people prefer the collectable nature and superior sound quality of CDs. This demand means that the vast majority of CDs are still worth something - and the amount you can make soon adds up!

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