4 Signs CDs Aren't Right for You

Certificate of deposit (CD) rates have remained near historic highs for months, offering consumers the opportunity to grow their money in a risk-free environment. While earnings can be impressive, CDs aren't for everyone. If any of the following four scenarios accurately describe your situation, you may want to rethink whether now is the right time to put money into a CD.

1. Your emergency fund is lacking

It's safe to assume that emergency situations are the primary reason people withdraw funds from their CDs before they have time to mature and earn interest. There's an easy fix for that.

Before investing in a CD, make sure you have enough money in an emergency fund to cover new brakes for your car, a visit to a medical specialist, or any other "surprise" situation that might arise. You may not be able to anticipate every issue, but if having an emergency fund prevents you from having to pay a penalty to withdraw money early from the CD, it's worth building the emergency fund first.

Whether you tuck the money away in a high-yield savings account or money market account (MMA), you never know when you might need it.

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 January 10, 2025. 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 January 10, 2025. 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 4.40% Rate info The annual percentage yield (APY) is accurate as of Jan. 2, 2025, 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.	4.40% Rate info The annual percentage yield (APY) is accurate as of Jan. 2, 2025, 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.

2. You're carrying high-interest debt

As tempted as you may be to jump into a CD while the rates are still attractive, now is not the right time if you're carrying high-interest credit card or personal loan debt. In fact, if you're carrying any debt with an interest rate higher than the rate of interest offered on the CD, you're losing money.

Instead, give yourself the time you need to pay off your existing debt before you invest.

3. Your income is irregular

The tricky part of irregular income is budgeting to ensure you'll have all the money you need to pay bills each month. If you own a business or work a seasonal job, that may be easier said than done. After all, as mentioned above, surprise situations pop up. If the issue that pops up ends up being expensive, it could lead to withdrawing funds from your CD before it matures and before you have the opportunity to earn interest.

That's not to say that you should ignore CDs if you're self-employed, work a seasonal job, or are in sales and receive periodic commission checks. Rather, pad your checking account so you have enough money to cover everyday expenses as you wait for periodic earnings to come through.

4. You could enjoy better returns elsewhere

If you're serious about investing your money, look around to see what else is available before buying a CD. Even a CD carrying a 5.00% APY can't compare to the long-term annual rate earned in the stock market. For example, historical data shows that investments in the S&P 500 have produced an average annual return of 12.6% over the past 15 years.

Every year won't be a winner, but if you have the time and patience to sit tight during a market downturn, you can find more impressive returns in the stock market. After all, it's during downturns that you pick up the most deeply discounted stocks and expand your portfolio.

CDs may have a lot going for them, but first things first. Make sure you have the money you need set aside to take care of emergencies, you've gotten rid of high-interest debt, and you've explored other investment options before settling on a CD.