I have a confession to make: until fairly recently, I didn't see the point of investing in certificates of deposit (CDs). Over the years, I've written lots of articles about CDs and I understand how they work. But I felt like CDs didn't have a place in my portfolio.
That's because, for the past several years while interest rates were low, lots of banks were paying ridiculously low APYs on CDs. (Even now, as of February 2024, some big banks are still paying only 0.01% APY on standard CDs.) What's the point of opening a CD if you have to: 1.) Lock up your money, and 2.) Not earn any yield?
But now that interest rates are higher and some of the best CD rates are 5.00% APY and above, I'm starting to see the appeal of CDs. If your financial goals are a good fit for committing your money to a CD, opening a CD in 2024 could give you an attractive APY and a safe place to let your savings grow.
Let's see why CDs could be the "comeback kid" of banking products in 2024.
1. Interest rates might not be this high again
Trying to time the stock market is risky and often does not work. No one knows exactly what is going to happen in the future for any given stock, industry, or for the global economy. However, many economists and investing experts believe that the Fed is going to cut interest rates in 2024. These possible interest rate cuts might not happen in March 2024 or May 2024, but they could happen.
And if the Fed does cut interest rates, that means today's best CD rates might be as high as they are going to get for the foreseeable future. Opening a CD today could help you get the highest possible APY on your savings.
For example, the best high-yield savings account based on The Ascent's research is offering 5.32% APY. But the best 1-year CD is offering 5.35% APY. That means the best CD will pay you an extra 0.03% APY on your savings compared to the best savings account.
If interest rates go down by the end of 2024, savings account APYs will go down too. But if your money is in a CD, you will earn the same fixed rate of interest that your CD term promises, even if the Fed cuts interest rates. CDs can protect your savings against possible interest rate cuts.
2. CDs are a safe investment with FDIC insurance
CDs are generally considered to be one of the safest investments. If you put your money into a CD with an FDIC-insured bank (or NCUA-insured credit union), you get the protection of federal deposit insurance on up to $250,000 per qualifying account. This means that even if your bank fails, you will still get your money back.
All the best CDs recommended by The Ascent are with federally-insured banks and credit unions. If you're concerned about recent bank failures, stock market volatility, or instability in the global economy, CDs can give you peace of mind.
3. CDs let you lock in a high APY for years
When you buy a CD, you commit your money for a certain period of time, or "term." The best CD rates tend to be higher than the best high-yield savings account APYs, because the bank is paying you extra for committing your money to the CD. Especially if the Fed cuts interest rates, locking in a good APY on a longer-term CD could be a smart investment.
For example, as of today, the best 3-year CDs were paying 4.45% APY. Let's assume that in the hypothetical near-future, the Fed decides to cut interest rates by 1%. That would mean that after the 1% rate cuts, the best savings accounts might only be paying 4.32% APY. Locking in a 4.45% APY on a 3-year CD today could let you earn more yield on your savings -- guaranteed for three years -- than the best savings accounts might offer in the case of future interest rate cuts.
Bottom line
I still probably won't open any CDs in 2024, because I would rather keep my cash in a high-yield savings account. But if you want to earn the highest possible yield on your savings, and you're not afraid to commit your money to a bank for a specific term of time, investing in CDs could be a smart move. Certificates of deposit are worth considering in 2024.
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FAQs
The surprising answer is Gen Z — those born in the mid to late 1990s through early 2000s, when CD players were about to be rendered nearly obsolete with thedebut of Apple's iPod in October 2001. That same generation has been gobbling up new releases in the CD format, taking TikTok todisplay their collections proudly.
Are CDs a good investment for 2024? ›
CD rate forecast: 2024
Projections suggest that we may see no rate increases in 2024, and that the Fed might start dropping its rate later this year, according to the CME FedWatch Tool on June 11.
Are music CDs coming back in 2024? ›
In an era dominated by streaming services and digital downloads, the unexpected resurgence of CD buying and the revival of CD players in 2024 may seem like a nostalgic journey back in time. However, this is not just a case of music lovers dusting off their collections for a listen down memory lane.
Why should you buy CDs now? ›
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.
Are CDs worth keeping anymore? ›
Absolutely! Although streaming and digital music are the most popular ways to listen these days, lots of people prefer the collectable nature and superior sound quality of CDs. This demand means that the vast majority of CDs are still worth something - and the amount you can make soon adds up!
Will CDs become collectible? ›
Still, it'll take a little while before CDs begin to approach the popularity of vinyl as the go-to format for collectors — perhaps even years. But there's always someone out there looking to find an out-of-print version of something they loved in their younger years.
Should I lock in a CD now or wait? ›
CD rates are at a 3-year high—but waiting longer to buy could be a gamble. CD rates have risen steadily over the past 12 months alongside the Fed's rate increases. Interest rates on certificates of deposits (CDs) have been increasing substantially since 2022—in lock-step with the Fed's rate hikes.
Where can I get 7% interest on my money? ›
Why Trust Us? As of June 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.
Is it good to buy CDs during a recession? ›
During the Great Recession and its aftermath, the stock market went through turbulent shifts, resulting in great losses for some stockholders. CDs are one option that can help protect your investment from times of turmoil by providing a stable income.
Should I keep my CD collection? ›
If you're wondering “are CDs worth anything”, you should know there's a lot of value in those old CDs, especially if you're an audiophile. These days, some streaming services are losing their luster – with some famous artists like Neil Young taking down entire catalogs.
The Rise of MP3 Players and Streaming Services
The rise of digital downloads and streaming services is mostly to blame, with digital downloads rising steadily since 2001. Streaming services (such as Spotify) have now taken over the top spot — outselling digital downloads and CDs in 2016, and they continue to grow.
Will CDs become obsolete? ›
"CDs still do pretty good," he said. "I feel like they're kind of coming back in a way." Coming back indeed. Physical music sales – primarily vinyl records, but CDs, too, and even cassettes – increased 4% in 2022, the RIAA said.
Why are people buying CDs again? ›
CDs are significantly cheaper than vinyl
Audio shops and retailers are practically giving away used CDs, while new CDs are usually in the $12 to $15 price range. If you're looking for vinyl, on the other hand, a new record will likely cost twice as much as that. Also, there's the resale value of CDs and vinyl.
Will CD rates go up in 2024? ›
"CD rates will most likely drop and drop substantially in 2024," says Robert Johnson, professor of finance at Heider College of Business at Creighton University. "The biggest reason is the likelihood of Federal Reserve rate cuts later this year."
Are CDs a safe investment right now? ›
CDs are a relatively risk-free way to grow your funds, but they also have some downsides. Mapping out plans to build your savings can be challenging, especially when interest rates fluctuate. A certificate of deposit (CD) is a good alternative if you're risk-averse when it comes to investing.
Why have CDs become so popular? ›
It gave consumers access to more music of a higher quality and it helped artists build their fanbases and become a successful part of the music industry. With CDs, artists were able to show us that music is more than notes and lyrics.
Are CDs going to be discontinued? ›
In June 2022, a headline on Billboard.com boldly proclaimed that CDs are back. The music industry watcher highlighted how both BTS and Beyoncé have "hopped on the seemingly retro trend" of releasing their latest albums on CD. Tech review website Engadget described the CD revival as "inevitable".
Is there any reason to keep old CDs? ›
If you're wondering “are CDs worth anything”, you should know there's a lot of value in those old CDs, especially if you're an audiophile. These days, some streaming services are losing their luster – with some famous artists like Neil Young taking down entire catalogs.
Does anybody listen to CDs anymore? ›
In 2023, more than 41 million LPs were sold in the U.S. alone. As for CDs, well, you might be surprised that people are still listening to them. In fact, I'm one of them. After being in a steady decline since 2000, CD sales are actually rising.
