Here's Why You Might Not Want to Wait to Open Your First CD

Certificates of deposit (CDs) are red hot right now -- and it's not hard to see why. Thanks to a series of rate hikes by the Federal Reserve in an attempt to cool inflation, we're currently living with a higher-than-usual federal funds rate. This number doesn't directly influence bank account APYs, but the two tend to move in concert.

While rate cuts were originally widely predicted for 2024, we've now made it almost halfway through the year (can you believe it?), with no rate cuts yet. And it looks as if the Federal Reserve is content to kick the can down the road.

That said, the higher rates on CDs we've seen as a result have already started to fall these last few months. So here's why opening a CD sooner rather than later is a good idea, if doing so is on your radar -- and why a CD may not be a great fit for you.

Going, going -- gone?

I don't mean to alarm you, but if you're hoping to jump on the CD bandwagon, you might not want to wait. In fact, rates on CDs are already falling, according to data collected by the FDIC (which tracks average rates on bank accounts). As of April 15, 2024, the average rate on a 12-month CD was 1.81%. But just three months prior in January, that average was 1.86%.

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.

This isn't a huge drop -- but it is indicative that rates are on the decline across the board. Our list of the best 12-month CD rates has numerous options paying over 5.00% APY, so if you want to open one of these, now is the time to act.

Is a CD a good idea for you?

Before you rush to open a CD and lock in a high APY, slow down and consider whether investing in CDs is even right for you. Depending on where you are in your personal finance journey, they might not be.

When you open a CD, you're effectively agreeing to lock your money up for the duration of the term -- be it three months or five years. And if you don't have a lot of cash available to cover unplanned expenses, this could leave you in a bind. If you need to break your CD term early, you'll owe a penalty. The amount you'll pay will depend on the CD's term, but it could be anywhere from a few months' worth of interest to a year's worth or more for longer-term CDs.

What are your other options?

Luckily, if you want to profit from today's higher rates, CDs aren't your only option. You can open a high-yield savings account with as little as $0, making them great for new savers. Just note that the best rates are offered by online banks, and it might be harder to access your cash in an online savings account. For the best results, consider linking a checking account to the savings so you can easily and quickly transfer money to it, and make sure any bank you're considering has in-network ATMs in your area.

And if you foresee needing easier access to your cash than a savings account can give you, consider money market accounts. These are like a hybrid between checking and savings and come with a debit card or check-writing privileges. Some have higher opening deposit requirements, however.

There are many ways to benefit from higher APYs on deposit bank accounts available now -- don't assume CDs are the only option. That said, if you're eager to get started with CDs, don't delay -- explore the available APYs and terms today and choose the right ones for you.