3 Reasons to Sit Out Sky-High CD Rates

If you're looking for a safe place to put some additional cash, certificates of deposit (CDs) are a great option. Many of them are paying annual percentage yields (APYs) above 5.00% right now, which is an easy way for your cash to outpace the negative effects of inflation.

But even with sky-high CD rates available, there are good reasons to put your hard-earned money elsewhere. Here are three fantastic reasons to sit out CDs right now.

1. You want easy access to money for large purchases

I recently went on a trip and pulled some money out of my savings account to help cover the cost of the beach vacation, a baseball game, and way too much pizza. Moving money from one account to another is a normal part of life, but it can get tricky if you're using a CD.

If you leave your money in a CD for the entire term, you won't be charged, but take some of your money out early, and you'll pay. Many CDs charge a penalty fee of 90 days of simple interest for CD terms of two years or less and 180 days of interest for CDs with longer terms.

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.

While some CDs don't charge an early withdrawal fee, they often pay a lower APY in exchange. This means that if you want easy access to your money for home or car repairs, a home down payment, or a fun time at the beach, a savings account is a better option than a CD.

2. Stock market returns can be much better

If you want to earn a significant return on your money, a CD isn't the best place for it. Sure, 5% is a pretty good return, but it doesn't hold up to the stock market's historical returns.

The S&P 500 has a historical rate of return of 10.2%, more than double some of the highest CD rates. There's no guarantee you'll earn that much, and you could earn less, but if you have a long investment timeline, there's no better place to put your money than the stock market.

For example, the S&P 500 has gained about 29.5% over the past two years. If you had invested $5,000 over that period, you'd now have about $6,476. Meanwhile, the same amount in a 2-year CD paying 5.00% would give you just $5,512.

3. Paying off debt is a better use of the money

I recently paid off some credit card debt, and I'm glad I did. My credit card company was charging me a staggering 19.5% annual percentage rate (APR). That's bad enough, but it's lower than the average APR of 24.8% right now.

Since credit card APRs are astronomically high, it's a smart move to put extra money toward debt payoff, rather than into a CD.

The average American has about $7,951 in credit card debt right now. Let's assume you owe about half that -- $4,000 -- in credit card debt with an APR of 24.8%. If you pay $400 per month, it will take you one year to pay off the balance, and it'll cost you $508 in interest.

In contrast, if you put $4,000 into a 1-year CD earning 5.00%, you'll earn just $200. And you'll still have the credit card balance to pay off. Womp womp.

Savings accounts are a better bet for most people

Can CDs be a good place to put your money? Absolutely. If you have extra cash that you don't need for emergencies and are just looking for a safe place to keep some money to outpace inflation, CDs are great.

But many people would probably benefit more from using that cash to pay off debt or invest in the stock market. And considering that many high-yield savings accounts currently have APYs of 5.00% or higher, that's probably a better place to store your money.

You'll have easy access to your funds, still earn a significant return, and won't have to pay any fees for withdrawing your cash.