Are CDs Still Worth It in 2024? (2024)

Rates for certificates of deposit steadily rose in 2023, with annual percentage yields, or APYs, as high as 5.65% for select terms. But the clock is ticking on your chance to get rates this high.

The Federal Reserve has held rates steady three consecutive times this year. And while the Fed doesn’t control CD rates, banks typically move in lockstep with the central bank’s direction. Experts believe rates won’t go much higher than they are today. In fact, some banks are already slightly lowering rates. Here’s what that means for next year.

What to know before opening a CD in 2024

For instance, if you plan to buy a home in three years, you may choose a three-year CD. But if there’s a chance you’ll need those funds for home repairs next year, you may choose a shorter term to have access to the money sooner without paying an early withdrawal penalty.

“We’ve experienced a volatile rate environment lately, with rates on savings and CDs fluctuating by the day,” said Steve Goodman, managing director of consumer banking at JPMorgan Chase & Co. “In terms of when is the right time to open a CD, there’s no right or wrong answer or exact moment.”

Pros and cons of CDs

CDs come with advantages and disadvantages. Here’s what you should keep in mind when deciding whether to open one.

When to consider opening a CD

A CD can be a great addition to your saving and investing strategy, especially if you fit into one of these categories:

You have a low-risk tolerance: If you’re nearing retirement age or you’ve already left the workforce, wild swings in the stock market can be especially challenging, and there’s a greater risk of losing your hard-earned savings. The guaranteed rate of return with a CD helps you avoid that risk. Plus, you can use your regular interest earnings to help cover some of your expenses.

You have a goal with a specific timeline: Perhaps you want to buy a house next year, and you’re working to save for the down payment and closing costs. If you plan to buy a place in 12 months, you may want to think about a short-term CD -- six or nine months, for example -- to help accelerate your savings before you apply for a mortgage preapproval. If, for example, you deposit $10,000 in a nine-month CD with a 4.50% APY, you’ll earn $335.64 when your CD term ends.

You want to prevent overspending: Early withdrawal penalties can help you avoid the temptation to dip into your savings. If you want to put an extra lock on your money that stands in the way of frivolous spending, a CD can help you think twice before withdrawing your cash.

When to avoid opening a CD

CD alternatives

• Traditional savings accounts: These accounts provide a modest interest rate -- often lower than CDs -- but in some cases, there are no withdrawal restrictions. You may also have access to a physical location as most traditional savings accounts are at branch banks.
• High-yield savings accounts: These accounts offer higher interest rates than regular savings accounts. You may be able to store money without fees or requirements, depending on the bank. Many high-yield savings accounts are offered by online-only banks, so you should feel comfortable with an entirely digital banking experience.
• Money market accounts: These accounts usually require a higher minimum balance than a savings account and may require a higher minimum balance to earn interest. But you’ll have more checking account features, such as an ATM card and check writing.

How to maintain flexibility while using CDs

Don’t let the withdrawal restrictions of traditional CDs scare you. You can deposit some of your money into a CD while still keeping other funds available easy access in a financial pinch. Here are some other savings options to maintain flexibility while scoring the higher earning potentials of CDs.

Look for a no-penalty CD: No-penalty CDs mean you won’t pay a penalty if you wind up needing some -- or all -- of your money before the term is up. While you’ll earn a lower rate than a traditional CD, you could set aside some of your funds for a no-penalty CD to ease your money worries.

Keep some of your cash in a high-yield savings account: The best high-yield savings accounts pay upward of 4% APY right now. You’ll get the best of both worlds with these: a high APY on par with CD rates and easy access to your money for regular contributions and withdrawals.

Build a CD ladder: CD ladders are a great strategy for diversifying your money with minimal risk. For example, let’s say you have $12,000 to put in a CD. Rather than locking all of it in a three-year CD, you might deposit $3,000 in a six-month CD, $3,000 in a one-year CD, $3,000 in a two-year CD and your remaining $3,000 in a three-year CD. This way, you’ll have money coming due every year, and you can spread out your funds across different rates.

Reevaluate your strategy during your grace period: Most CDs automatically renew shortly after the term ends, but you’ll have a grace period -- typically 10 days -- to decide whether you want to reinvest the money, withdraw it or pick a different place to keep it. Make sure you mark your calendar with your maturity date and watch out for alerts from your bank to determine the best route when your CD term is up.

Is a CD better than a high-yield savings account?

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Correction: An earlier version of this article was assisted by an AI engine and it mischaracterized some aspects of CDs and savings accounts. Those points were all corrected. This version has been substantially updated by a staff writer.