3 Reasons Not to Open a CD Right Now, Even With Rates at 5%

Even though their rates have gone down a bit, certificates of deposit (CDs) are still a way to boost your savings. If you shop around for the best CD rates, you can find some banks paying 4%, 4.5%, and as high as 5%.

CDs aren't right for everyone, though. And if you rush into opening one, you could end up regretting it later. Here are three reasons why you might not want to open a CD.

1. CDs don't provide easy access to your money

Each CD has a fixed interest rate and duration. If you open a 1-year CD with a 4.5% APY, then you're guaranteed that rate for a full year. This gives you protection if interest rates drop, like they did last month after the Fed cut the federal funds rate.

But you're also required to keep your money in the CD for the entire term. If you make a withdrawal, you'll pay an early withdrawal penalty, which is often several months of interest. For that reason, it's a bad idea to open a CD with money you may need at a moment's notice, such as your emergency savings.

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 29, 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 29, 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.

Looking for a high-paying account that lets you withdraw your money at any time? Check out the Discover® Online Savings account, which has a 3.75% APY. Click here to learn more and open an account today.

2. CDs won't get you the best return

Rates of 4% to 5% are excellent for banking products. But if you really want to grow your money, there are much better investments than CDs.

Stocks are one of the best examples. The stock market (as measured by the S&P 500) has historically grown about 10% per year. That's not a consistent return -- some years are much higher or lower. But it's the return that long-term investors have received.

Savings accounts and CDs are still better for money you'll need in the next few years. They provide more security, since they aren't volatile like the stock market. For building wealth and your retirement savings, investing in stocks via a great broker is a smarter choice because of their growth potential.

3. CDs complicate your finances

One of the reasons I've never opened a CD is because it's too much of a hassle. You need to figure out how much money you can afford to lock in a CD, and for how long. You'll also need to keep track of your CD's maturity date -- when the term ends. And at that point, you choose to either withdraw your money or roll it over into a new CD.

CDs are also an extra source of income to include when you file your taxes. The interest you earn is taxable at the state and federal level. While none of these are huge issues, it's extra work I'd personally rather avoid, especially when it's possible to make more by investing in the stock market.

If you're sure you can lock up some savings, a CD could be a good way to lock in a high interest rate. But if this type of account isn't right for you, you can also earn a competitive rate with a high-yield savings account. To find one, click here to check out our curated list of the best savings accounts.