Here's why now is the perfect time to put your savings in a CD (2024)

FAQs

Here's why now is the perfect time to put your savings in a CD? ›

With savings accounts offering record-high returns today over 5%, now's the time to take advantage before those rates go down. And with a CD specifically, savers can lock in today's high rate despite any future cuts from the Fed.

A look at CD rates since June 2022

Higher rates have big benefits for savers. Savings account and CD APYs tend to rise alongside the federal funds rate. If you're in a position to save in today's higher interest rate environment, investments like CDs could help accelerate your savings.

While longer-term CDs may tie up your funds for years, a 6-month CD allows you to access your money relatively quickly. If you suddenly need your $5,000 for an emergency or a more lucrative investment opportunity arises, you won't have to wait years to access your funds without incurring hefty penalties.

The biggest risk to CD accounts is usually an interest-rate risk, as federal rate cuts could lead banks to pay out less to savers. 7 Bank failure is also a risk, though this is a rarity.

Ramsey has referred to certificates of deposit as "nothing more than glorified savings accounts with slightly higher interest rates." Ramsey warned that you shouldn't invest in CDs because average rates won't keep pace with inflation and because they aren't a good place to grow your money.

CD rates tend to lag behind rising inflation and drop more quickly than inflation on the way down. Because of that likelihood, investing in CDs carries the danger that your money will lose its purchasing power over time as your interest gains are overtaken by inflation.

Unlike traditional or high-yield savings accounts, which have variable APYs, most CDs lock your money into a fixed interest rate the day you open the account. That's why if you suspect that interest rates will soon drop, it can be a good idea to put money in a CD to preserve the high APY you would earn.

Key takeaways. The national average rate for one-year CD rates will be at 1.15 percent APY by the end of 2024, McBride forecasts, while predicting top-yielding one-year CDs to pay a significantly higher rate of 4.25 percent APY at that time.

As of May 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.

Can you ever lose money in a CD? ›

The risk of having a CD is very low. Unlike how the stock market or a Roth IRA can lose money, you typically cannot lose money in a CD. There is actually no risk the account owner incurs unless you withdraw money before the account reaches maturity.

Yes, CDs are generally still safe even if a stock market crash occurs. CDs are a type of bank account. Many accounts offer a set rate of return for a specific timeframe that won't fluctuate.

When you sign up for a CD, you agree not to touch the money for a set period of time but there are always unexpected expenses. If you access your money before the CD's term is up, you'll be charged an early withdrawal penalty, often worth a few months of interest.

But not everyone needs a CD, Orman and other pros say

“As great as the certificate offers are today, I don't want you putting all your emergency savings into a certificate. That's because if you need the money during the year, you will pay a penalty for making an early withdrawal,” says Orman.

Warren Buffett famously deemed them “financial weapons of mass destruction,” and others compared them to taking out fire insurance on a neighbor's home. But the CDS market may be improving transparency in the stock and bond markets.

“It can be advantageous for wealthy clients to buy CDs in certain scenarios, like inside an IRA. Since IRAs are tax-favored accounts, it can defer taxes on the CD until a client takes distributions, or generate tax free income in the case of a qualified distribution from a Roth IRA,” says Piershale.

Bottom line. When deciding between a long-term CD or putting money in the stock market, always take into account your goals and how long you'll need to achieve them. For long-term plans like retirement, the market offers better returns than locking up your cash in a CD.

Standard CDs are insured by the Federal Deposit Insurance Corp. (FDIC) for up to $250,000, so they cannot lose money. However, some CDs that are not FDIC-insured may carry greater risk, and there may be risks that come from rising inflation or interest rates.

Account safety

CDs are generally safe investments. These accounts offer fixed, predictable returns that aren't affected by financial markets or the state of the economy once you lock in your rate. Moreover, CDs usually come with FDIC or NCUA insurance for up to $250,000 per depositor, per account.

The national average APY for a one-year CD is 1.74 percent, based on Bankrate research, which shows this average has increased or remained the same since March 2022. If you deposited $10,000 into a one-year CD that pays this national average rate of 1.74 percent, in one year it would be worth a total of around $10,174.