I have a confession to make: until fairly recently, I didn't see the point of investing in certificates of deposit (CDs). Over the years, I've written lots of articles about CDs and I understand how they work. But I felt like CDs didn't have a place in my portfolio.
That's because, for the past several years while interest rates were low, lots of banks were paying ridiculously low APYs on CDs. (Even now, as of February 2024, some big banks are still paying only 0.01% APY on standard CDs.) What's the point of opening a CD if you have to: 1.) Lock up your money, and 2.) Not earn any yield?
But now that interest rates are higher and some of the best CD rates are 5.00% APY and above, I'm starting to see the appeal of CDs. If your financial goals are a good fit for committing your money to a CD, opening a CD in 2024 could give you an attractive APY and a safe place to let your savings grow.
Let's see why CDs could be the "comeback kid" of banking products in 2024.
1. Interest rates might not be this high again
Trying to time the stock market is risky and often does not work. No one knows exactly what is going to happen in the future for any given stock, industry, or for the global economy. However, many economists and investing experts believe that the Fed is going to cut interest rates in 2024. These possible interest rate cuts might not happen in March 2024 or May 2024, but they could happen.
And if the Fed does cut interest rates, that means today's best CD rates might be as high as they are going to get for the foreseeable future. Opening a CD today could help you get the highest possible APY on your savings.
For example, the best high-yield savings account based on The Ascent's research is offering 5.32% APY. But the best 1-year CD is offering 5.35% APY. That means the best CD will pay you an extra 0.03% APY on your savings compared to the best savings account.
If interest rates go down by the end of 2024, savings account APYs will go down too. But if your money is in a CD, you will earn the same fixed rate of interest that your CD term promises, even if the Fed cuts interest rates. CDs can protect your savings against possible interest rate cuts.
2. CDs are a safe investment with FDIC insurance
CDs are generally considered to be one of the safest investments. If you put your money into a CD with an FDIC-insured bank (or NCUA-insured credit union), you get the protection of federal deposit insurance on up to $250,000 per qualifying account. This means that even if your bank fails, you will still get your money back.
All the best CDs recommended by The Ascent are with federally-insured banks and credit unions. If you're concerned about recent bank failures, stock market volatility, or instability in the global economy, CDs can give you peace of mind.
3. CDs let you lock in a high APY for years
When you buy a CD, you commit your money for a certain period of time, or "term." The best CD rates tend to be higher than the best high-yield savings account APYs, because the bank is paying you extra for committing your money to the CD. Especially if the Fed cuts interest rates, locking in a good APY on a longer-term CD could be a smart investment.
For example, as of today, the best 3-year CDs were paying 4.45% APY. Let's assume that in the hypothetical near-future, the Fed decides to cut interest rates by 1%. That would mean that after the 1% rate cuts, the best savings accounts might only be paying 4.32% APY. Locking in a 4.45% APY on a 3-year CD today could let you earn more yield on your savings -- guaranteed for three years -- than the best savings accounts might offer in the case of future interest rate cuts.
Bottom line
I still probably won't open any CDs in 2024, because I would rather keep my cash in a high-yield savings account. But if you want to earn the highest possible yield on your savings, and you're not afraid to commit your money to a bank for a specific term of time, investing in CDs could be a smart move. Certificates of deposit are worth considering in 2024.
FAQs
The surprising answer is Gen Z — those born in the mid to late 1990s through early 2000s, when CD players were about to be rendered nearly obsolete with thedebut of Apple's iPod in October 2001. That same generation has been gobbling up new releases in the CD format, taking TikTok todisplay their collections proudly.
Are CDs making a comeback in 2024? ›
In an era dominated by streaming services and digital downloads, the unexpected resurgence of CD buying and the revival of CD players in 2024 may seem like a nostalgic journey back in time. However, this is not just a case of music lovers dusting off their collections for a listen down memory lane.
Why have CDs become so popular? ›
CDs are a much better value. They're less than half the cost of vinyl, easier to store, and massively more convenient to copy over to a hard drive to build a private music streaming solution.
Are CDs and DVDs coming back? ›
According to the Recording Industry Association of America's 2023 midyear revenue report, while streaming accounts for 84 percent of music revenue, physical media is on the rise. Vinyl records are the main growth driver, but sales of CDs have also increased.
Are CDs worth keeping anymore? ›
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!
Are people collecting CDs again? ›
In the age of music streaming, CDs are making a comeback. Gen Z is flocking to thrift stores and record shops to find their favorite albums in physical form. Vinyl records have been popular with younger generations since the mid-2010s, with artists even offering colored vinyl as merch for their new releases.
Will CDs become collectable? ›
Current Pulse: The 2023 Perspective on CD Sales and Popularity. In 2023, CD collecting is rampant, perhaps for the great memories and emotional connection that many people have with CDs. As digital platforms become the go-to place for listening to music, CDs are now viewed as collectible items.
What will replace CDs? ›
The rise of digital downloads and streaming services is mostly to blame, with digital downloads rising steadily since 2001. Streaming services (such as Spotify) have now taken over the top spot — outselling digital downloads and CDs in 2016, and they continue to grow.
Are CDs getting better? ›
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.
Are CDs worth it in 2024? ›
National average CD rates are higher than in years past. The average 12-month CD earns 1.88% as of September 2024, according to FDIC data.
At least they have the best potential for sound quality in physical media. They don't always use that potential. But, for the music I love most, CDs often have the same or greater dynamic range compared to vinyl, without the degradation over time that vinyl experiences (like wear, distortion, clicks, and pops).
Should I keep my CD collection? ›
If you're wondering “are CDs worth anything”, you should know there's a lot of value in those old CDs, especially if you're an audiophile. These days, some streaming services are losing their luster – with some famous artists like Neil Young taking down entire catalogs.
Why are CDs coming back? ›
Though CDs are no longer the most convenient format on which to listen to your favorite band, collecting them has become a hobby for Gen Z fans, some of whom proudly display their discs among their belongings.
Does Gen Z like CDs? ›
CD sales have also enjoyed decade-long growth in the U.S. Increasingly attracted to all things touchable, Gen Z music fans have taken up CD collecting as a hobby. Displaying CDs in creative ways has become a form of self-expression. They are also 33% more likely to buy artists' apparel than the general U.S. population.
Does anyone still buy CDs? ›
Global sales of vinyl, CDs and other physical formats increased 4% in 2022, accounting for $4.6 billion of the $26.2 billion worldwide music market, according to the International Federation of the Phonographic Industry's Global Music Report 2023.
Are CDs going to be obsolete? ›
The end of the CD is a bit like the end of the world: People keep predicting it, but it has yet to happen. Of course, more and more people are turning to audio formats like MP3s that have no physical store medium. This allows people to compile vast music libraries on their computer hard drives or USB storage devices.
Why are CDs so high right now? ›
The Fed has raised its rate 11 times since March 2022, which is a big reason CD rates have been so high. Financial institutions often change their rates to move in the same direction as the Fed rate, though that's not always the case, and bank changes can take some time.
Is there any reason to keep old CDs? ›
CDs are significantly cheaper than vinyl
If you're looking for vinyl, on the other hand, a new record will likely cost twice as much as that. Also, there's the resale value of CDs and vinyl. It might not be much, but you can sell your old records and CDs online or to record shops.
