Forget About 5% CDs -- Here's Where You Should Put Your Savings Instead

Interest rates have come down quite a bit recently. If you've been looking for a way to keep earning a high APY on your savings, certificates of deposit (CDs) are a popular choice. These allow you to lock in an interest rate for the entire CD term.

The highest-paying CDs are still offering impressive rates. Some shorter-term CDs earn APYs of 4.5% to 5%. But CDs don't let you access your money at any time, so they're not the right place to put the bulk of your savings. Here's a better option.

Open a high-yield savings account for more flexibility and a competitive APY

The big drawback with CDs is that you can't make any withdrawals until the maturity date. For example, if you open a 1-year CD, you need to keep your money there for a year. If you need your money earlier, you'll be charged an early withdrawal penalty. That's the price you pay for a guaranteed APY.

Because of this restriction, a CD isn't a good choice for savings you may need at any time. You wouldn't want to put your emergency fund in a CD, to give you one example. If an emergency strikes halfway into your CD's term, you'll pay a penalty to get your money out.

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.

You won't have that problem with a high-yield savings account. This type of account allows you to withdraw your money without penalty at any time, and you can still earn a high APY. Many high-yield savings accounts have rates equal to or even higher than what CDs offer.

Looking for a high-yield savings account? Consider the Western Alliance Bank High-Yield Savings Premier account. It has one of the highest rates I've found with a 4.46% APY, and there are no monthly fees. Click here to learn more and open an account today.

Invest your long-term savings to earn even more

High-yield savings accounts are a good choice for money you'll use in the next few years. For long-term savings, some people go with CDs so they have a guaranteed rate. Once again, there's potentially a better option: investing in the stock market.

At the time of this writing, you can earn 4% to 5% per year with high-yield savings accounts and CDs. The U.S. stock market, as represented by the S&P 500, averages about 10% per year over the past 50 years. Here's how much of a difference that makes on a $10,000 investment:

• After 30 years at a 5% annual return, you'd have $43,219.
• After 10 years at a 10% annual return, you'd have $174,494.

The stock market is volatile -- it's not a guaranteed 10% per year. It could be up to 30% one year and down by 15% the next. But over the long haul, it averages out to about 10% per year. As you can see, that makes a huge difference in how much you earn. With long-term savings, such as your retirement, investing is the clear choice.

You can invest through a traditional brokerage account or an individual retirement account (IRA). If you don't have an IRA yet, you probably should, as it can help you save on taxes. And right now, Robinhood is offering an IRA match to help boost your retirement savings. WARNING SCL [brokerage slug=robinhood field=apply_url] does not generate a link. Anchor tag will not render in production.Find out more and open an account here.

Making the most of your savings

Even with interest rates dropping, don't feel pressured to put your money in a CD. While CDs work well for some, they aren't right for everyone because of their early withdrawal penalties.

I personally do exactly what I described above. Short-term savings and my emergency fund is in a high-yield savings account. Money I've earmarked for building long-term wealth is invested. It's a simple approach that works for most people.