Is It Too Late to Take Advantage of High CD Rates?

CD rates have been exceptionally high over the last few months, especially for CDs with terms of a year or less. But with Federal Reserve rate cuts expected in the latter half of the year and into 2025, many banks have already begun gradually reducing their APYs.

This can be worrisome if you hoped to lock in a high rate on your savings for the next few months or years. But there's still time to claim above-average CD rates. Below, we'll talk about which types of CDs may be best right now and whether a CD is a good fit for you in the first place.

Choosing the right CD for you

CDs break down into two broad categories: short-term CDs have term lengths of a year or less while long-term CDs have term lengths longer than one year. Choosing the right term length is critical because it affects your access to your cash and your interest rate.

Long-term CDs tie your money up for a longer period. If you open a 5-year CD, you're agreeing to leave your cash alone for five years. Early withdrawals trigger penalties. But in exchange for that longer term, you usually get a higher interest rate than you would with a short-term CD.

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.

The current interest rate environment is unusual. With inflation having been so high, banks have offered the best rates on short-term CDs. These maxed out around 5.00% APY. Long-term CD rates are still high, but have been a little lower at around 4.00% APY. The best CD rates in both categories have fallen a little off these highs in the last couple of months.

You might be tempted to go with a short-term CD to capitalize on the higher rates, and this could be the right move if you don't want to tie up your cash for too long. But if you open a 1-year CD, for example, and then hope to reinvest in a new 1-year CD when the initial term ends, you'll probably end up with a lower rate on your second CD.

Longer-term CDs may have slightly lower APYs, but they could generate greater interest for you over the long term. That's why long-term CDs are generally more popular when interest rates are falling. You can secure a higher rate now that's guaranteed to last for years.

Alternatives to CDs

CDs are a great choice if you want a guaranteed return and you're comfortable locking your money away for the specified term. But if you don't want to do this, a high-yield savings account is probably a better fit for you. Your interest rate will rise and fall over time, so it's difficult to predict how much you'll earn in a year. But you'll be able to withdraw your cash whenever you need. This makes savings account a great home for your emergency fund and short-term savings.

If you're trying to decide where to keep long-term savings, investing could be a better choice than a long-term CD. There's a risk of loss, but you could also grow your wealth much faster than you could with a CD. A lot depends on your risk tolerance and investment horizons, though. 

If you're unsure which option is the best for you right now, you could always spread your money around. Keep your emergency fund in a savings account, invest money you don't plan to spend in the next five to seven years in a brokerage account or retirement account, and toss the rest into a CD. This can give you the best of both worlds by enabling access to the cash you need while allowing for significant growth to your long-term savings.