Are CDs Worth It Right Now? Here’s What Experts Say

Certificates of deposit (CDs) offer you a chance to keep your cash safe from loss of principal — and potentially earn a higher yield than what you’d get with a savings account.

With a CD, you commit to keeping your money locked up for a set amount of time, and the bank or credit union often rewards you by paying a higher yield than that of a standard savings account. The flipside, however, is that you could end up paying penalties and fees if you withdraw your money early.

Before you incorporate CDs into your investment strategy, consider your risk tolerance and when you’ll need access to the money, as well as current rates and where they may be headed.

While still high, CD rates have dipped and may drop further in 2025

Among nine CD terms Bankrate monitors between six months and five years, top annual percentage yields (APYs) have declined by an average of 0.62 percent since August 2024.

While leading rates have dipped, they remain elevated, overall. APYs of 4.40 percent or above can still be found on common terms of up to one year, while slightly lower rates are available on terms between 18 months and five years.

The rate decreases occurred leading up to, and after, the Federal Reserve lowered its key benchmark rate three times in 2024.

What the Federal Reserve rate means for CD investing

In response to decreasing inflation, the Fed lowered rates by a total of 1 percentage point, or 100 basis points, between September and December 2024. This came after policymakers had raised rates a considerable 5.25 percentage points, or 525 basis points, between March 2022 and July 2023, in an effort to combat inflation. The federal funds rate currently stands at a range of 4.25-4.5 percent.

Most recently, Federal Reserve policymakers have held rates steady due to upticks in inflation. The federal funds rate currently stands at a range of 4.25-4.5 percent. Prior, officials lowered rates by a total of 1 percentage point, or 100 basis points, between September and December 2024 in response to decreasing inflation. This followed 11 rate hikes in 2022 and 2023 to combat high inflation.

Yields on competitive CDs and savings accounts tend to follow the federal funds rate. As such, high-yield CD rates have been decreasing for months. Overall, however, APYs on competitive CDs currently remain at their highest in over a decade, outside the current rate cycle. The Fed decided to leave rates untouched at its January 2025 meeting, and it remains to be seen whether officials will change rates this year.

Most CDs require you to lock in your funds to earn a fixed APY, which is guaranteed to remain the same throughout the CD’s term. Securing a high fixed APY can benefit you if the going rates drop any further on new CDs.

“With the Federal Reserve in a holding pattern on interest rates, we don’t see the same downward pressure on CD yields that we saw in late 2024. CD yields are unlikely to move materially either up or down until there is some clarity on when the Fed’s next move will be, but in the meantime the top-yielding CDs will continue to outpace the rate of inflation.”

— Greg McBrideCFA, Bankrate chief financial analyst

Pros and Cons of investing in CDs

When investing in a CD is worth it

A common reason for investing in CDs is security, as fixed-rate CDs guarantee you’ll earn the same APY throughout the CD’s entire term. Conversely, money in liquid savings accounts earns a variable APY that can fluctuate at any time. Similarly, the value of assets invested in the stock market commonly fluctuates as well.

A fixed-rate CD can be a valuable tool for savers who wish to know exactly how much money will be in the account when it matures.

For instance, if you deposit $10,000 into a one-year CD that earns 4.40 percent APY, you can calculate up front that you’ll earn around $440 in interest by the time the CD matures.

What’s more, as deposit accounts, CDs are covered under federal deposit insurance, as long as the money is with a federally insured bank or credit union. This means it’s covered up to $250,000 per depositor, per insured bank or credit union, per ownership category. As such, you won’t lose money if the financial institution were to fail, as long as it’s within the stated limits.

If you’re seeking the benefits of longer-term fixed rates, along with access to some of your funds relatively soon, a CD ladder could be worth considering. This consists of opening multiple CDs at once, with varying maturity dates. When each CD matures and its money is freed up, you can choose to open another CD or invest the money elsewhere.

CDs can also be useful to save for the short term — six to 18 months. Locking up some of your money in a CD can help keep you from dipping into your funds for other purposes and ensure the money goes to the proper goal.

When investing in a CD is not worth it

While CDs can provide some guaranteed returns over time and some level of security, they’re not likely to provide you with the returns needed to build wealth for retirement over time. Instead, it might make more sense to build wealth with other assets and only use CDs for a portion of your portfolio.

Additionally, CDs might not be worth it if you need more access to your savings, since there’s typically an early withdrawal penalty. For example, if you’re building an emergency fund, avoid keeping that fund in a CD. It’s better to store your emergency fund in a savings account, where you can withdraw the money whenever it’s needed.

“If you need the money before the term ends, you will likely be charged an early withdrawal penalty, so be aware of what it will cost you in case you need to unlock your money prematurely,” says Mark Moroz, head of deposits and payments at Live Oak Bank.

Alternatives to CDs in 2025

While some CD rates are currently outpacing the rate of inflation, you might decide it’s best not to lock up your funds. Or, you might choose to diversify your funds among CDs and other types of investments. These options include:

• No-penalty CDs: Unlike traditional CDs, these allow you to access your funds prior to the maturity date, without changing an early-withdrawal penalty. Note that no-penalty CD rates tend to be lower than traditional CDs with similar term lengths.
• High-yield savings accounts: A high-yield savings account earns a competitive APY — and it provides penalty-free access to your funds, unlike CDs that charge penalties for early withdrawals. As such, these liquid accounts are a better place than CDs for your emergency fund. Unlike CDs, savings accounts earn variable APYs, so their rates are subject to change at any time.
• Treasury Inflation-Protected Securities (TIPS): These U.S. government bonds provide some protection against inflation while being fairly safe. The effective interest rate paid on TIPS moves up or down, along with inflation.
• Fixed annuities: If you already have a large chunk of capital and are looking for something stable, a fixed annuity might provide better returns than a CD. These contracts, typically made with an insurance company, guarantee a certain amount of income for a set period.
• Mutual funds: Mutual funds consist of money pooled by investors that’s invested in securities such as stocks or bonds. There are thousands of mutual funds to choose from, so you can diversify your portfolio by investing in a variety of ways. Mutual funds may earn higher yields than CDs, although these rates of return are subject to fluctuation.

No matter where you choose to invest your money, a good investment strategy involves considering your risk tolerance and finding ways to properly diversify your investments. A financial advisor is often a valuable resource.

Bottom line

As part of a portfolio that includes cash, CDs can provide stability and security. However, CDs are unlikely to provide you with the returns you need to build wealth for the future or live off the interest — unless you already have a large amount of money and ladder your CDs to avoid penalties.

Additionally, CDs lack the liquidity you’d need for something like an emergency fund. To recession-proof your finances, it’s important to establish an emergency fund in a savings account before focusing on other investments.