The Fed cut its benchmark interest rate by 0.5% in September, and it is likely to cut it further after that. This is good news for borrowers who will now have to pay less to borrow money. But for savers, this marks the end of the high interest rates we have enjoyed. So, can you still make money from certificates of deposit (CDs)?
The short answer is, “Yes, you can still make money with CDs.” However, whether you should do so depends on your overall financial goals.
Yes, you can still make money with CDs
CDs are still a safe place to store your money, especially for short- to medium-term goals. One of the biggest perks of CDs is that they are FDIC insured. This means that if a bank fails, your deposits are protected up to $250,000 per bank, per depositor, and per ownership category.
What are the drawbacks? The money is locked in for a set period of time and there are usually penalties for withdrawing it early.
Recommendations for the Best High Yield Savings Accounts of 2024
Capital One 360 performance savings
AP
4.00%
Price Information A circle with the letter I written on it. Please visit the Capital One website for the latest pricing. Published Annual Percentage Yield (APY) is variable and accurate as of October 23, 2024. Rates may change at any time before or after account opening. Member of the FDIC.
AP
4.00%
Price Information A circle with the letter I written on it. Please visit the Capital One website for the latest pricing. Published Annual Percentage Yield (APY) is variable and accurate as of October 23, 2024. Rates may change at any time before or after account opening.
Minutes. earn
$0
American Express® High Yield Savings
AP
4.00%
Price Information A circle with the letter I written on it. Annualized yield of 4.00% as of October 27, 2024. FDIC Member States.
AP
4.00%
Price Information A circle with the letter I written on it. Annual percentage yield as of October 27, 2024 4.00%
Minutes. earn
$0
CIT Platinum Savings
AP
4.70% APY for balances over $5,000
Price Information A circle with the letter I written on it. 4.70% APY on balances over $5,000. Otherwise, 0.25% APY
Minutes. earn
$100 to open account, up to $5,000 APY
Member of the FDIC.
AP
4.70% APY for balances over $5,000
Price Information A circle with the letter I written on it. 4.70% APY on balances over $5,000. Otherwise, 0.25% APY
Minutes. earn
$100 to open account, up to $5,000 APY
Unlike stocks, CDs carry a fixed interest rate, so you know exactly how much you’ll earn. Currently, top CDs still offer interest rates around 4%. Let’s take a look at what you can make with CDs, assuming a 3.8% CD rate and a $10,000 investment.
CD Term CD Growth Rate (3.8%) 6 months $191.51 1 year $386.69 5 years $2,088.87
Data source: Author calculations
CDs are especially useful if you’re saving for a specific goal on a clear schedule, such as buying a home in a few years. You can protect your money and earn interest without exposing your savings to market fluctuations. CDs may also appeal to retirees who value stability and reliable income.
However, if you invest too much in CDs, you may miss out on higher growth opportunities in other areas.
CD is not always the best choice
CD rates could fall further, so you may want to lock in today’s rate. However, don’t let fear of missing out cloud your judgment. There are situations where CDs are not the best option.
For example, you shouldn’t consolidate your emergency savings into a CD. Your emergency fund needs to be easily accessible, and locking your money away in a CD can limit your access when you need it most. A high-yield savings account (HYSA) is usually a good choice for emergency savings.
Click here for the best high-yield savings accounts and enjoy around 4% APY.
Here’s how the same CD rate would compare to putting that money into a HYSA with the highest interest rate I could find.
Term CD Growth (3.8%) HYSA (5.15%) 6 months $191.51 $254. 27 1 year $386.69 $515. 00 5 years $2,088.87 $2,854. twenty four
Data source: Author calculations
You could be missing out on nearly $800 in growth over five years. (Of course, this assumes that interest rates remain the same, but that may not be the case.)
CDs are also not suitable for long-term retirement savings. If retirement is more than a few years away, it’s generally better to invest in the stock market. Stocks tend to give higher returns over time, averaging about 10% per year. Although it involves more risk, the growth potential may outweigh the stability of CDs in the long run.
You don’t need to be a financial expert to start investing either. Using low-cost mutual funds and investing apps can simplify the process and help you build a diversified portfolio.
Want to make investing easier? Check out our popular investing apps.
Should I buy a CD today?
Don’t let the Fed’s recent 0.5% interest rate cut sway your CD decision. While it’s true that CD interest rates will go down, they won’t go down overnight, and your personal financial goals should guide your choices. CDs are still a good option for some savers, but it’s important to think about what you need the money for, when you’ll need it, and how much risk you’re willing to take.
In other words, CDs are still a viable investment option. However, interest rates are on the decline, so you should consider your options carefully.
