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Are CDs Worth It 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, nationally, average interest rates remain high.

Portrait of Lora Shinn

Lora Shinn
Contributor
Published Jan 30, 2024 in: Budgeting

Read time: 10 minutes

Nationally, CD interest rates, on average, were higher in the last year than they've been in more than a decade, according to Forbes Advisor. But great rates aren't the only thing to consider when you're trying to help your money grow.

Sure, if you open a traditional CD now, you'll lock in your rate for the term of the CD, but you'll also lock up your money for that term. Whether a CD is worth it right now depends on your savings goals, the type of CD you get and the CD strategy you use.

If you have a big expense coming up soon, you might consider other options to save and grow your money.

What Are You Saving For? 

Before investing in a CD, take some time to think through your savings goals.

Do you have enough money to cover your regular expenses every month? Have you saved up for a surprise medical bill or car repair? Are you planning to make a down payment on a new car or new home in the next couple of months? 

Asking yourself these questions can help you decide if a CD is worth it for you right now. That's because when you open a traditional CD, you and your credit union or bank are entering into a contract. This contract sets out the CD interest rate, yield (or amount of return) and the term (the length of time your money will be deposited). The term might be three months, 12 months or several years.

So, if you already have an emergency fund, and you can keep a chunk of money in an account for the entire term, a CD might be worth it for you. If you need to withdraw money early, you might pay an early withdrawal penalty, which is typically a few months of interest.

If you have a big expense coming up soon, then you might think about savings alternatives.

CD Investing Pros and Cons 

CDs can be a smart financial move at times, but not so great at others. In the past, other investments earned higher rates than even the best CDs could earn. But, in today's high-interest-rate environment, CDs might be a great option. Here are the pros and cons of CD investing in 2024.

Pros of CD Investing 

  • High current rates: CD interest rates have risen significantly over the past few years as other interest rates (on credit cards, mortgages and savings accounts, for example) also rose. While a one-year CD in a credit union would earn 1.32% APY*** on average in the fourth quarter of 2019, it earned 3.2 % APY   on average in the fourth quarter of 2023, according to the National Credit Union Administration.
  • Short-term CDs are paying well: Historically, CD accounts rewarded you with higher fixed rates for keeping your funds for longer terms, such as several years. But in 2024, you'll likely find higher-rate CDs for one to 12 months.
  • Better returns: CDs typically offer better rates than other deposit accounts such as checking accounts or traditional savings accounts, according to MyCreditUnion.gov — often with no monthly fees.
  • Ensures returns without market risk: Stocks and bonds have had a bumpy past few years with dramatic highs and lows. Fixed-rate CDs pay a stable annual percentage yield no matter the overall economy's fluctuations. In most cases, you won't lose money in a CD.
  • Funds can be insured: As long as your CD is opened at a financial institution insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Association (NCUA), your deposit accounts, including CDs, are covered for up to $250,000 combined, even if the financial institution fails. You can open multiple CDs at different insured institutions if you have more than $250,000.

Cons of CD Investing 

  • Opportunity cost: If your money is locked up in a CD, the cash isn't available to use on a potentially better opportunity in the stock market without an early withdrawal penalty — or even a higher-rate CD. With most CDs, a credit union won't increase your rate when interest rates change.
  • Early withdrawal fees: You'll pay an early withdrawal penalty if you withdraw your funds before the end of the agreed-upon term. This amount is usually a few months' interest. You won't pay this penalty with a savings account.
  • Interest is taxable: You may pay taxes on interest earned.**
  • May not outpace inflation: If inflation starts rising again, your CD's rate may not keep up with inflation's rate and lose purchasing power.
  • Multiple accounts to manage: Opening high-interest CDs at different banks and credit unions can lead to challenges with keeping track of CD maturity dates and rollovers.

Types of CDs 

A variety of new CD offerings and specialty CD types are available now. Some may make it worth the effort of doing your research, tracking maturity dates and reinvesting your money. Other types of CDs may help you avoid early withdrawal penalties or require low minimum deposits. Consider different CD types to help you combine the flexibility of a savings account and higher rates of a CD.

Fixed-Rate or Traditional CDs 

This is the most common type of CD. With this option, you commit to keeping a fixed amount of money in the CD for a specific term. Your financial institution pays the interest rate offered when you opened the CD. The interest rate stays the same for the whole term.

This is an illustration of a fixed rate CD strategy example. One lock says $10,000 and is leading to another lock showing a 12-month CD at 3% APY. At the end of the 12 months (the second lock) the CD is now worth $10,300.
With a traditional fixed-rate CD, you don't add to or withdraw money during the term and the interest rate stays the same until the term ends.

Bump-Up CDs 

These CDs help you keep up if interest rates rise in the future. You have a one-time option to request a raise in your rate, if rates go up. Some CDs automatically increase rates.

Add-To or Add-On CDs

If you don't have a chunk of money to invest right away, you can use this type of CD. Contribute a low minimum deposit, then add to your total over time — earning interest along the way.

No-Penalty CDs 

Some financial institutions offer a no-penalty CD, you can withdraw your money at any time, even before the CD matures. You may find a slightly lower fixed interest rate with this type of CD, or only have limited term options to choose from, such as 9-12 months. (BECU doesn't offer this type of CD.)

IRA CDs

IRA CDs are intended for your retirement savings, as a combination of a CD and individual retirement account (IRA). For advice on how to combine CDs with a tax or retirement strategy, speak with a personal finance expert or tax professional.

CD Strategies 

How and when you invest in CDs leads to different outcomes. You can open CDs at different times and choose different term lengths to strategically meet your savings goals. Here are three strategies to consider as you're deciding whether CDs are worth it for you.

CD Ladder

CD ladder is a method of dividing up the money you want to invest across CDs with progressively longer terms, ensuring you always have a maturity date coming up.

This illustration is a CD ladder strategy example. Each step of the ladder represents a CD in term years. The first stair is one year, then two years, three years and the last step is four years. There is a money icon at the top of each step.
To build a CD ladder, divide the money you want to invest into CDs with progressively longer terms.

Example: If you have $10,000, you could put $2,000 each in 12-month, 24-month, 36-month, 48-month and 60-month CDs for a total investment of $10,000. Your CDs will mature every year for the next five years.

This strategy can help you avoid early withdrawal penalties by not having all your money in one long-term CD. But you'll maximize your return by reinvesting $2,000 plus interest after each CD matures.

You can use CD laddering with many specialty CDs, but using a CD ladder is more common with traditional CDs.

CD Barbell

The CD barbell strategy involves investing in a short-term and a long-term CD. You can take advantage of earning interest on your money, without all of it being locked up for the long term.

Example: You have $10,000 to save. You put $5,000 in a one-year CD and $5,000 in a five-year CD. In one year, you can either spend the $5,000 plus interest or reinvest it in another CD. Meanwhile, the $5,000 continues to grow over five years.

This strategy is great if you're saving for different goals at different times, like buying a car next year vs. saving for a down payment on a house five years from now.

It also gives you flexibility, so you don't have to commit to interest rates if you think they're going to change. This strategy might especially make sense in the current high-rate environment, where short-term CDs tend to have higher rates.

This is an illustration of a CD barbell strategy example. One end of the barbell has a label "one year" and the other end is labeled "five years." $5,000 is going into each side of the barbell, amounting to $10,000 at the bottom.
A CD barbell is a great option to consider if you want to save for different goals at different times.

CD Bullet 

This is an illustration of a CD bullet strategy example. Five cars are listed in a timeline, and each is heading to a maturity date finish line. At the bottom of the illustration are years referencing the CD terms.
The CD bullet involves investing money at intervals in CDs with progressively shorter terms so they all mature at once.

With the CD bullet strategy, you invest money at intervals in CDs with progressively shorter terms so they all mature at once.

Example: You invest $2,000 a year for five years into CDs with 60-month, 48-month, 36-month, 24-month and 12-month terms. All five CDs will mature at the same time for a total of $10,000 plus interest. 

This is a good one to consider if you want to commit a certain amount to savings for a specific goal, but don't have all the money up front.

How To Find the Best CD Rates 

First, check the CD rates at your current bank or credit union. Moving cash between your checking account or savings account to a CD may be easy.

You can also compare rates at other online banks and credit unions beyond your current financial institution to find the best rate and term combination for your situation. For example, if you don't want to stash money in a CD for more than a year, you'll want to shop for CD rates under 12 months. 

Review online resources carefully. Many websites may only display CD rates from banks and credit unions they receive a commission from.

Rates displayed are usually based on a year's earnings. For example, if you have $1,000 and see a rate advertised as 5%, that means in one year, you would earn $50 in interest. But if you only put it in for 1 month, you'll only earn $4.07. 

Once you determine how much interest is offered, take time to review the financial institution's fine print:

  • Any membership or customer requirements.
  • Term (length of CD deposit time) required to earn the high rate.
  • Ease of depositing and withdrawing funds.
  • Early withdrawal penalty.
  • Customer reviews of the institution.

Are CDs a Good Way to Make Money? 

CDs can be a good way to preserve the value of your money and earn some interest. You might not get rich from a CD, but you could earn better returns than some other investments.

When Might a CD Not Be Worth It? 

A CD might not be worth it if you need your money soon, such as within a few weeks, and you don't have emergency funds to rely on. Opening a CD account also may not be worth it if the financial institution requires fees.

Does a CD Offer an ATM card? 

No, unlike many other types of bank accounts, a CD account doesn't offer you a way to easily access your money. This is because the money you've put in the CD is supposed to stay in the account for a set amount of time you agreed to. Other types of financial accounts offer ATM cards, including checking accounts, money market accounts or share accounts.

Alternatives: Savings Accounts and More 

If you're not sure about investing in CDs, consider these savings alternatives:

Traditional Savings Accounts 

Some banks and credit unions offer savings accounts that pay higher returns than some CDs. Look for institutions that pay you a higher rate for being a member or customer when you deposit money.

Money Market Accounts 

A money market account may pay higher rates than a savings account but lower rates than a CD. Like a CD, you'll pay taxes on earned interest — but you can access cash at any time. MMAs may offer check-writing features and other easy-spend aspects. 

Government Bonds 

Government bonds pay either a fixed or variable rate of interest until maturity — typically 20 to 30 years. Some government bonds don't incur state or local taxes, while others are designed to keep up with inflation. However, you may run into minimum or maximum limits.

Takeaway: Start With Your Goals 

CDs can be a good investment if you want to ensure you earn returns on your cash along with the stability and security of an NCUA/FDIC-insured account. It pays to do your research to find a credit union or other financial institution with good rates and easy-to-manage terms.


* Where examples are used, the products, rates and returns are not guaranteed and are for educational purposes only. The information and examples are not advice and may not reflect the rates, products, or services currently available from BECU. BECU does not offer or guarantee products or rates in this article.

**The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

*** Rates stated as Annual Percentage Yield (APY). 

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Portrait of Lora Shinn

Lora Shinn
Contributor

Lora specializes in personal finance topics for BECU, and has also written for regional and national publications such as The Balance, U.S. News and World Report, LendingTree, GoodRx, CNN Money, Bankrate, The Seattle Times, Redbook and Assurance IQ.