3 Reasons Your CDs Aren't as Safe as You Think

Certificates of deposit (CDs) are a popular place to put savings. They have high rates for a banking product, with some of the best CDs offering 4.5% to 5%. They also have a reputation for being safe and secure.

That's true, to an extent. You're not at risk of losing money with CDs, so they're a reliable way to earn interest on your savings. But there are some other risks involved that you should know about before opening any CDs.

1. You're giving up easy access to your savings

With a typical bank account, you're free to withdraw your money whenever you want. Checking accounts, savings accounts, and money market accounts all let you access your money at any time. The downside is that these accounts have variable interest rates that can go up or down.

CDs offer fixed rates and last for a set amount of time. Let's say you deposit money in a 2-year CD with a 4% APY. You're guaranteed that rate of 4% for the entire two years, but you also need to keep your money deposited that long. That could be problematic if you need to tap into your savings to cover an emergency expense.

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.

If you don't want to lock up your money in a CD, but you want to grow your savings, check out the Discover® Online Savings account. It has no withdrawal limits, monthly fees, or account minimums, and it has an excellent 3.75% APY. New customers can even earn a bonus offer for a limited time. Click here to learn more and open your account today.

2. You'll pay a penalty if you need to make an early withdrawal

You can get money out of a CD early, but it will cost you. To discourage this, CDs have early withdrawal penalties if you make a withdrawal before the maturity date.

The penalty is normally a portion of the interest you've earned -- anywhere from three to 12 months of interest payments are common penalty amounts. The penalty is often tied to the length of the CD. A 1-year CD may have an early withdrawal penalty of three months of interest. A 3- or 4-year CD could penalize early withdrawals with a year of interest.

Early withdrawal penalties eat into your CD returns. If you think there's any chance you'll need to withdraw money, you're better off with a high-yield savings account. You'll still earn a competitive APY without any early withdrawal penalties. Check out our top high-yield savings account picks to compare the best options.

3. Returns are much lower than the stock market

There's a hefty opportunity cost when you invest in CDs. Rates of 4% to 5% might sound impressive, but compared to the typical returns when investing in stocks, they're lackluster. The stock market, as represented by the S&P 500 index, has a long-term return of about 10% per year.

To put that difference into perspective, let's say you're investing $10,000 for 30 years. If you get a 5% average return per year, you'll end up with about $43,000. If you get a 10% average turn, you'll end up with about $174,000.

CDs are fine for savings goals you have in the near future. But if your goal is building wealth and saving for retirement, you're much more likely to be successful if you invest in stocks.

CDs certainly aren't a high-risk financial product, but they're not quite 100% safe, either. You won't be able to get your money out during the CD term, at least not without paying a penalty. And while you can get a solid return from investing in CDs, it's not going to be nearly as much as you could potentially earn in the stock market.