Are CDs Worth It Right Now?

Even though CD interest rates have recently fallen nationally, they are still higher in early 2025 than several years ago.

But interest rates aren't the only thing to consider when 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.*

Why CD Rates are High in 2025

The Fed cut interest rates as inflation cooled last year, but with January 2025 data indicating a possible increase in inflation could be on the way, the Fed is in no hurry to cut interest rates again, according to Fed Chair Jerome Powell's testimony before Congress.

This means CD rates won't fall as fast as had been anticipated: "If the Fed moves rates down at a slower pace, deposit rates may stay higher for longer," Steinkrauss said.

Rates will likely be highest for 2025 at the beginning of the year and lowest by the end of the year, Steinkrauss said.

In 2025 and for the past year or so, we're in something called an "inverted yield curve," where short-term CDs have higher rates than long-term CDs.

Historically, long-term CDs — defined as 18 months or more — have been more likely to have higher rates than short-term CDs.

How Do Current CD Rates Compare With the Expected Rate of Inflation?

Following several years of high inflation, the Consumer Price Index over the past 12 months is 3.0%, according to the Bureau of Labor Statistics, as of Feb. 12, 2025. The Fed expects inflation to come down slowly over the next few years through 2027.

Most financial institutions closely monitor the Fed's rates and how competitors set CD and money market rates.

CD rates began coming down in mid-2024 as inflation's peak seemed to be subsiding.

The average bank and credit union CD rates are slightly lower than inflation, according to the National Credit Union Administration. The money you save goes further when CD rates outpace inflation.

If CD rates are lower than inflation, your dollars don't hold the value the same way — but you still might be locking in a higher rate than you could get if inflation fully subsides.

CD rates would likely only rise if inflation again became a notable problem which is still a possibility, Steinkrauss noted.

"Things seem to change every week, particularly over the past few years," she said. "Inflation hasn't declined as much as anticipated."

CD Investing Pros and Cons in 2025

In the past, other investments earned higher rates than even the best CDs could earn. But in today's rate environment, CDs might be a good option, even if rates are lower than in 2024. Here are some possible pros and cons of saving with CDs in 2025.

Possible Pros of CD Investing Right Now

• Current rates: CD rates are comparatively high right now, especially on shorter term lengths. For example, nationally, a one-year CD at a credit union earned 0.95% interest on average in the fourth quarter of 2020. But that same CD earned 3.11% interest on average in the fourth quarter of 2024, according to the National Credit Union Administration.**
• Good time for CD newbies: In 2025, you should still be able to find high-rate CDs for one to 12 months. As a result, you won't lock up money long-term and can learn more about choosing, opening and rolling over a CD (or withdrawing your funds).
• Stable rates on opened CDs: Stocks and bonds have had a bumpy few years with dramatic highs and lows. Fixed-rate CDs pay stable returns no matter the overall economy's fluctuations. 
• Interest rates may continue declining: CD returns could decline further if the Fed lowers interest rates again in 2025. The window for opening a higher-rate CD before rates decline significantly may be closing.

Possible Cons of CD Investing Right Now

• Risk of opportunity cost: If your money is locked up in a CD, then you can't put it into a potentially higher-interest opportunity, such as the stock market, without early-withdrawal penalties.
• Potential rate increases: CD rates may have peaked. But if CD rates continue going up for some reason, most banks and credit unions won't increase your rate unless you have a bump-up or step-up CD.
• Inflation risk: If inflation's rate is higher than the rate you're earning on the CD, the money you invest will have less value when you take it out. While a CD will earn more than an account paying no interest, you could earn more than the rate of inflation in other investment vehicles.
• Multiple accounts to manage: Opening high-interest-earning CDs at different banks and credit unions can create a hassle of tracking CDs. A forgotten CD may be automatically rolled over into the exact term you had — even if rates are lower.

Are CDs Worth It When Rates Are Rising?

"Unless the Fed reverses course and starts raising rates, it's unlikely we'll see CD rates increase in 2025," Steinkrauss said.

In general, a CD is worth it if rates are rising, and you can easily find and open a CD with a higher interest rate than a savings account. In the current inverted yield curve, short-term CDs will usually have a higher rate, and those CDs may be a good option.

But if CD rates continue to go up, you could miss out on a higher rate in the future by locking in funds now. Some savers deal with this by opening bump-up CDs, which offer the opportunity to increase their rate if CD rates go up.

You can also manage the risk of missing out on a higher rate by putting money into CDs in staggered intervals.

Example: Imagine you have $1,000 to save but worry that rates may increase. You could put in $500 in a six-month CD now. If you notice rates go up a few months later, you can put your remaining $500 in another six-month CD.

Are CDs Worth It When Rates Are Dropping?

If rates drop, you may feel pressured to snag a higher-rate CD before the rate is gone. A standard CD of any term will maintain the same returns when interest rates drop.

As a historical example, you could have opened a five-year CD in 2019 at 2.06% interest (the average rate at that time). But if you waited a few months — until March 2020 — to open your CD, rates had already dropped to 1.56% for the same CD. You would have missed out on hundreds of dollars' worth of earnings by waiting just a few months to open the CD.

Here's how it would affect earnings if you invested $10,000, with interest compounding monthly:**

Example: Effect of different interest rates on 5-year CDs. December 2019 and March 2020 rates based on credit union national averages, according to the NCUA.**

As rates continue to drop and if the CD environment returns to normal, long-term CDs will feature higher interest rates than short-term CDs. At that time, long-term CDs may be more worthwhile.

Is a CD Ladder a Good Strategy Right Now?

If rates continue falling in 2025, a CD ladder strategy may not be the best option. This is because a CD ladder strategy assumes longer-term CD interest rates are higher than shorter-term CD interest rates. Or the CD ladder strategy may assume rates will stay about the same or even go higher over time.

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. You'll pay a penalty for closing the account early and lose your excellent interest rate. Opening a CD account also may not be worth it if the financial institution charges an early withdrawal fee.

Can You Lose Money on a CD?

You could lose several months of earned interest if you withdraw funds early from a CD. However, you probably won't lose your principal (the original amount you deposited). But read the fine print — a bank or credit union's penalty for early withdrawal could lead to losing some principal you put into the CD.

Is Putting Money in CDs Safe Right Now?

CDs are among the safest investments you can make with your savings. These accounts are insured by FDIC (if a bank) or NCUA (if a credit union) up to $250,000. As a deposit account, a CD is more like a very safe savings account, not an account with stocks or bonds you could lose money on.

How Are CD Rates Determined?

The Federal Reserve sets a benchmark federal funds rate — basically, the target rate for financial institutions to borrow and lend each other money. This short-term interest rate increased dramatically in the past few years to slow down inflation.

Although the Fed's rates don't directly set CD interest rates, they do influence them.

So, CD rates also rose significantly over the past few years before starting to decline. Other interest rates, including those for credit cards, mortgages and savings accounts, have also risen significantly.

As inflation cooled, the Fed stopped raising interest rates in June 2023 and cut rates in 2024. But the Fed doesn't plan to cut interest rates again until inflation cools further in 2025, according to Powell's Congressional testimony.

"There's less competition among financial institutions for deposits, resulting in lower rates for CDs and other savings products," Steinkrauss said.

The Takeaway: Are CDs Worth It Right Now?

Opening a CD in 2025 may be a good idea if you think CD rates will continue to drop in the next 12-24 months. It could pay off to lock in your interest rate before rates drop lower.

Yet when deciding whether it's a good time to get a CD, it's crucial to consider your unique, personal financial position.

"It depends on flexibility," Steinkrauss said. "If you have cash you don't need in the short term, I'd recommend a CD. But if liquidity is a priority, other types of accounts with competitive rates may be better options."

Finding a long-term CD (such as five years) that competes with shorter-term CDs (such as one year) could be challenging. It's also possible that if inflation becomes challenging again, the Fed could resume raising rates.

Carefully consider your savings goals and be willing to adjust strategies if the economic climate changes in 2025.

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