Even at 5%, CDs Are So Last Year. Here's Where to Put Your Money Today

Elevated savings rates have made certificates of deposit (CDs) extremely popular recently. But upcoming rate cuts have some savers wondering what might take their place. There are still a couple of top CD rates of over 5% right now, but that supercharged savings window won't stay open much longer.

The good news is that there are other (some might say better) ways you can earn decent returns. CDs are excellent short- to medium-term savings vehicles, which doesn't make them the best choice in all situations. Indeed, these three other options often make more financial sense.

1. Invest in bonds

Like CDs, bonds are relatively low-risk places to park your cash. Bonds are not as straightforward as CDs. But the big plus right now is that they often perform well when interest rates are falling. While CDs benefited from the Fed's efforts to curb inflation by increasing rates, bonds will benefit when rates go down.

Those shifting tides mean it could be time to board the bond boat. Bonds are kind of like an IOU from a government or company. When you buy a bond, you are essentially lending money. The organization commits to paying you a fixed rate of interest on that loan.

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.

Bond prices fluctuate, and there are always risks to loaning money, even if it is to the U.S. government or a big corporation. Even so, bonds are often safer investments than stocks. Plus, those loan repayments give you a predictable income stream. Let's say you buy a $5,000, 10-year bond with a rate of 4%. You'd get a payment of $100 every six months for 10 years.

You can buy treasury bonds through a broker or directly from the government. You can also buy bonds through ETFs or mutual funds. Funds are baskets of securities and can be a more accessible and affordable way to add bonds to your portfolio.

2. Invest in dividend-paying stocks

When thinking about where to put your money, it's good to understand the difference between saving and investing. If you want to build wealth, compounding the higher returns you'll get from investing can make a considerable difference over time.

Saving vehicles are relatively safe places to put money you might need in the short to medium term. For example, a top high-yield savings account is a great home for your emergency fund. The trade-off for that safety is that the returns are usually fairly low.

Investments -- buying assets such as stocks that you believe will grow in value -- carry more risk, particularly in the short term. But the returns are usually much higher. For example, the average annual returns of the S&P 500, which often gets used as a benchmark for stock market performance, are around 8%. This is higher than even the best CDs.

The difficulty is that those are average returns. There will be years when the market drops and your portfolio loses value. If you're forced to sell during a downturn, you may wind up losing money.

This is why it's important to only invest money you don't plan to touch in the coming five to 10 years. That way, you can wait out any market fluctuations.

Dividend-paying stocks sweeten the investment deal even further. Some companies pay a share of their profits in the form of dividends to their shareholders. Depending on what stocks you own, that can translate into annual payments of around 2%, in addition to any growth of the value of the assets themselves.

3. Pay down your credit card

If you carry a balance on your credit card, you could be paying an APR of upward of 20%. The money you save in interest payments will be considerably more than you'd earn from even the best CDs or savings accounts. Indeed, it will be more than you'd get from many investments as well.

Think of your credit card repayments as guaranteed investments that will pay annual returns of 20% or more. That's an opportunity you won't find very often. On top of that, you won't owe any taxes on your gains because the government can't tax money you're saving on interest payments. In contrast, CD interest payments are considered taxable income.

Make a plan to tackle your credit card debt. Start by looking through your spending and see if there's any nonessential spending you can cut, such as subscriptions or takeout food. Work out how much you can realistically commit to debt repayments each month.

Then decide how you want to pay it down. If you owe money on more than one card, you might start with the one with the lowest balance to get the psychological boost when it hits zero. Or you might focus on the one with the highest APR, as this will reduce your interest costs faster.

Bottom line

The great thing about personal finance is that when one opportunity fades, another steps into the limelight. High interest rates made CDs and savings accounts more attractive, but they still only made sense in certain scenarios -- and less so now that rates will fall.

If you have cash you know you won't need in the near future, now could be the time to learn more about investing. And if you have credit card debt, prioritize paying it off.