Prediction: 5.00% APY CDs Won't Be Around Much Longer. Should You Open One Now?

Interest rates on certificates of deposit (CDs) have been sky high over the last few years. But rates on savings accounts have been high too, so people haven't had that much incentive to lock their money away for months or years in a CD.

That looks to be changing, though. Many expect savings account and CD rates to fall later this year into 2025 as inflation cools. Some see this as a sign that now's the time to lock in a high CD rate before they're gone. But here are a few factors to consider before you do that.

The advantages to opening a CD right now

Opening a CD right now enables you to lock in a competitive CD rate that could last for years. It's possible you could earn even more with one of these over the next few years than you could with a high-yield savings account if savings account interest rates fall sharply.

Say you invest $10,000 in a 1-year CD with a 5.00% APY. That would earn you $500 in a year. If you'd kept that $10,000 in a savings account that earned 5.00% for one month and then 4.00% for the remaining 11 months of the year, you'd only wind up with about $408 in interest for that year.

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 9, 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 9, 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.

Short-term CD rates pay the highest APYs right now, which is not typical. This might seem like your best option, but it depends on how long you can leave the money untouched.

Continuing our example above, say you invested $10,000 in a 1-year CD with a 5.00% APY. You'd have $10,500 at the end of that year. Then, you invest in another 1-year CD with a 4.00% APY and a third 1-year CD with a 3.00% APY. At the end of three years, you'd have $11,248. But if you'd invested in a 3-year CD with a 4.50% APY right now, you'd have $11,412 at the end of three years.

The disadvantages to opening a CD right now

The obvious drawback to opening a CD is that you're locking your savings away for an extended period of time -- sometimes years. You can technically take your money out early if you need to, but you'll pay an early withdrawal penalty for doing so.

An early withdrawal penalty usually doesn't cost you any of your principal (unless you withdraw very early in your CD's term), but you will come away with a lot less in interest than you would've gotten by leaving the money in the CD until maturity. So make sure you choose your CD's term carefully if you decide to go this route.

CDs can also be the wrong choice for those who don't plan to use their money for decades. These people can often earn more on their savings by investing it rather than keeping it in a CD. Even the best CD rates generally don't beat the inflation rate, so your buying power could decline even while the dollar value of your account increases.

If you don't think a CD is a good fit for you, consider moving long-term savings to a retirement account or taxable brokerage account and keep the rest in a high-yield savings account. Your savings account interest rate will ebb and flow over time, but at least you'll be free to access this cash whenever you need to.