Are CDs Still a Good Investment After the Fed Rate Cuts?

It's finally happened. After months of speculation, the Federal Reserve has cut rates by 0.5%. This is likely the first of several rate cuts, which will come as a relief for borrowers. For savers, it means the high-interest party is coming to an end.

If you're wondering whether certificates of deposit (CDs) are still a good place to put your money, the short answer is maybe. Top CDs and savings accounts had a place in our financial armories before the recent high rates covered them in glitter. They still do today, as rates haven't dropped that much. And they will continue to, even after rates fall more.

CDs are useful savings vehicles that will suit certain people at certain times. Here's how to know when a CD is -- or is not -- a good investment for you.

When a CD is a good place to put your money

CDs offer a relatively safe place to put money you may need in the short to medium term. They're also almost always FDIC insured, so if your bank collapses, your money is protected up to $250,000 per depositor, per FDIC-insured bank, per ownership category.

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 28, 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 28, 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.

Additionally, CDs often pay slightly higher interest rates than savings accounts. The catch is that you need to leave your cash alone for the full CD term -- otherwise, in most cases, you'll have to pay an early withdrawal penalty.

Unlike, say, a stock market investment, CDs pay a fixed rate of interest. That means you'll know exactly how much you'll get and when. Right now, top CDs are still paying APYs of 4% or more. If you put $2,000 into a 1-year CD with a 4% APY, you'd still earn $80 in interest.

All in all, if you are saving for a specific goal and you know when you'll need to access your money, CDs can make sense. Let's say you're planning to buy a home in three years' time. A CD might pay a higher APY than you'd get on a savings account, meaning your money would grow more.

In some cases, high-rate CDs could appeal to retirees who want a safe, guaranteed payout. That said, CDs won't pay as much interest as other investments. It's one thing to put a proportion of your holdings in low-risk investment. But if you put too much into CDs, you may be missing out on opportunities to earn more elsewhere.

When CDs are not the best option for your money

CD rates are going to fall further in the near future. That may give some people FOMO (fear of missing out) and make them want to lock in today's rates before they go down more. Don't give in to it. There are many situations when CDs are not the best choice.

For starters, don't put your emergency savings into a CD. Your emergency fund exists so you can access money quickly if you face a financial crisis. If it's locked up in a 5-year CD, you won't be able to get at it easily. A high-yield savings account is a much better choice.

For the most part, you shouldn't put your retirement savings into a CD either. If your retirement is still far in the future, consider investing that money in the stock market. You don't need to be a financial expert to open a brokerage account and start investing.

If you don't have the time (or desire) to research individual stocks, that's OK. You might invest in ETFs (exchange-traded funds) instead. These are a relatively low-cost way to build a diversified portfolio, as they give you exposure to a mix of securities. Or you might use a robo-advisor to automatically take care of your investments.

The S&P 500 has generated average returns over 8%, which is considerably more than you'll get with CDs. There's more risk, and we're talking about average returns, so there could be years when the value of your portfolio decreases. If time is on your side, you'll be able to let any gains compound and also wait out any bad years.

Don't let a 0.5% rate cut influence your CD decision

It's easy to see headlines about rate cuts and panic that CD APYs will never be the same again. Try not to make knee-jerk decisions about your money -- there's almost always time to work out what makes most sense for you.

In the case of CDs, the Fed's rate cuts will cause the APYs on top CDs to fall slightly. Over time, they'll fall further. But it's your financial situation that really defines whether CDs are a good investment. Think about what you need the money for, when you need to access it, and how much risk you're willing to take.