3 Alternatives I Like Better Than CDs Right Now

CDs have felt a bit like a pair of boots that were trendy 20 years ago before magically coming back into fashion recently. This relatively underused financial tool had been gathering dust at the back of the wardrobe. Last year, it became the star of the show. 

But with even the best CD rates falling, fashions are changing again. That's a good thing -- financial products are rarely a one-size-fits-all deal. CDs can be great for certain people in certain scenarios. But they aren't right for everybody. 

Here are some alternatives that will be a better fit for many people.

1. High-yield savings accounts

The big advantage that top high-yield savings accounts have over CDs is accessibility. Unlike a CD, where you commit to leave your funds alone for the CD term, you can withdraw your money as you need it. That matters for things like your emergency fund. 

Our Picks for the Best High-Yield Savings Accounts of 2024

Product	APY	Min. to Earn
American Express® High Yield Savings Member FDIC. APY 3.80% Rate info 3.80% annual percentage yield as of December 28, 2024. Terms apply. Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	3.80% Rate info 3.80% annual percentage yield as of December 28, 2024. Terms apply.	$0	Open Account for American Express® High Yield Savings On American Express's Secure Website.
Capital One 360 Performance Savings Member FDIC. APY 3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.	$0	Open Account for Capital One 360 Performance Savings On Capital One's Secure Website.
Western Alliance Bank High-Yield Savings Premier Member FDIC. APY 4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. to earn $500 to open, $0.01 for max APY Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website. Member FDIC.	4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	$500 to open, $0.01 for max APY	Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website.

When you're thinking about where to put your money, two of the biggest considerations are when you might want the cash and how much interest you can earn on it. The two often work seesaw against each other.

So if you don't plan to touch your money for five to 10 years or more, you might earn more by investing it, which I'll cover further down. But if you're likely to need to get your hands on your money quickly, find a good savings account. Even with the rate cuts, there are still some paying excellent APYs. 

For example, as I write this, the Discover® Online Savings account pays an APY of 3.75% -- nine-times the national average. Plus, it doesn't charge monthly fees. Learn more about what this popular savings account has to offer.

2. ETFs 

If you want to build wealth, you need to move beyond savings vehicles and consider ways to invest for the long term. You still need savings -- they are part of your financial foundations. But once you've got that basis, you can afford to take slightly more risk in exchange for higher returns. And over time, compound interest (earning interest on your interest) can prove transformative.

Many people get nervous at the idea of investing. There's a perception you need to read the business pages every morning and be able to analyze charts and profit sheets to buy shares. That's one way to invest, but it's not the only way. Exchange-traded funds (ETFs) are much more accessible. 

ETFs are essentially baskets of securities that you can buy and sell like ordinary stocks. They can be a great way for beginner investors to build a diversified portfolio. You'll still need to do some research to know which ones to buy, but they are great buy-and-hold investments. 

Want to buy ETFs? Check out our picks for the best ETF brokers.

For example, you might buy an ETF that tracks the S&P 500 and gives you exposure to the largest 500 publicly traded companies in the U.S. Historically, the S&P 500 has produced average annual returns of around 8%. That's an average -- there will be times when your portfolio gains and times when it doesn't. 

Even so, let's say you invest $200 a month and earn an 8% return. After 30 years, you'd have invested a total of $72,000. But your portfolio could be worth over $270,000.

3. REITs

Real estate investment trusts (REITs) are another type of investment. The trust is a company that owns and manages a mix of real estate assets. That might be office buildings, apartments, shopping malls, hotels, or something else. It's a way to diversify your portfolio by holding real estate, without actually buying property.

One of the great things about REITs is that they have to pay 90% of their taxable income to shareholders each year. This can translate into great dividend payments for investors. And that can be an excellent source of passive income. Dividend payments come on top of any appreciation in value of the trust itself. 

According to NAREIT, the average dividend payment from REITs was 3.9% last year. In comparison, the S&P 500 generated 1.7% in dividends. As falling rates start to impact savings and CDs, investments that pay dividends can be a good source of passive income. However, bear in mind that -- like the stock market -- property investments will have bad years as well as good ones. 

It's time to look beyond CDs

There aren't many ways to earn returns of 4% or 5% without taking some risk with your money. This is one reason CDs and savings accounts have been so attractive in recent years. However, savings vehicles will never make you rich -- even when they are paying eye-popping rates. 

If you don't plan to touch your money for five to 10 years or more, look for ways to invest it. That might be through ETFs, REITs, or another investment vehicle. Think about your risk tolerance, your time frame, and your financial goals. If you're not sure where to start, a financial advisor can help you get the right mix of assets.