4 Reasons Why CDs Aren't a Good Investment for 2025

For the last year or so, certificates of deposit (CDs) have been a popular place to stash money. You can currently get about 4% from the highest-paying CDs, depending on the bank and term you choose. CDs also have fixed rates, so you get to lock in your rate for the entire CD term.

Some people decide to invest in CDs because they're a safe option. But while CDs have their uses, they're not the best investment for a few reasons.

1. You won't have access to your money

With some investments, you can put money in and take it out any time. While it's typically better to hold onto investments for the long haul, if you want to sell some stocks and withdraw your money, you're free to do that.

CDs don't give you this flexibility. When you put money in a CD, you're agreeing to keep it there until the maturity date. In return, you lock in a fixed interest rate for your money. If you need your money before your CD matures, you'll likely pay an early withdrawal penalty.

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2. Rates have dropped

Unfortunately for new CD investors, rates aren't nearly as good as they were a few months ago. Earlier this year, there were many CDs offering over 5%. A select few earned even more, with the highest I saw coming in at a whopping 9%. But the Fed has cut its benchmark interest rate twice since then, and there's a possibility it will do so for a third time before the end of the year.

To be honest, the best time to invest in CDs was around the middle of 2024. Now that rates are lower, they aren't as attractive an option, especially when you compare them to other ways you could invest your money.

3. Other investments have much more growth potential

The main benefit of investing in CDs is how reliable they are. You won't need to worry about losing the money you deposit or your CD's rate decreasing after you open it. Those are both important with a short-term investment.

If you're a long-term investor, then CDs won't work nearly as well. There are investments that offer much larger returns, such as stocks. The U.S. stock market, as represented by the S&P 500 index, has an average yearly return of about 10% going back over 50 years. That's much better than the 4% you could get with a CD.

4. You'll pay taxes on the interest

The IRS considers CD interest to be taxable income. Earn $500 in interest from CDs? That's an additional $500 in income to declare. If you're in the 22% tax bracket, then you'll pay $110 in taxes.

With investments that increase in value, including stocks and real estate, you won't have this problem. If you invest $10,000 in a stock, and its value increases to $11,000, you have $1,000 in capital gains. You're only taxed on those gains when you sell. Plus, if you hold onto it for longer than a year, you'll pay long-term capital gains taxes, which are lower than income tax rates.

Being too conservative as an investor can cost you. For as safe as CDs are, their rates just don't compare to what you could get from investing in the stock market.

They can work well as a short-term investment, provided you know how long you can lock up your money. But if it's money you may need at any time, find a high-yield savings account instead so you don't need to worry about early withdrawal penalties.