Why the Highest-Paying CDs Aren't Always a Good Deal -- Even With Rates of Up to 9.5%

Certificates of deposit (CDs) are having a moment. Before 2024, the only people I knew who used CDs were my grandparents. Now, they're one of the most talked-about banking products.

When you see the best CD rates, it's easy to understand why. There are plenty of CDs with APYs of 5.00% or more. Then there's California Coast Credit Union, which is offering an incredible 9.50% APY on its Celebration Certificate.

On the surface, the highest-paying CDs seem like an unbelievable deal. But the fine print sometimes reveals a few big drawbacks.

The shortest CDs have the highest rates

You can get a high APY on a CD right now, but you might not be able to get it for as long as you want. There has been talk of interest rates dropping later this year. To protect themselves in case that happens, banks and credit unions often have their highest rates on their short-term CDs.

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.

For example, that Celebration Certificate from California Coast Credit Union is a 5-month CD. Sure, it pays 9.50%, but it doesn't last very long. The credit union's longer CDs earn less than 3.00% at the time of this writing.

Some CDs have maximum deposit amounts and other conditions

Another way that CD issuers protect themselves is with deposit maximums. Going back to that Celebration Certificate, it has a maximum deposit amount of $3,000. So if you were planning to put in a large amount of savings, you may be unpleasantly surprised.

It also has other requirements, including that you're a member of California Coast Credit Union. Only people who live or work in certain counties in California can join.

Conditions like these are fairly common among the highest-paying CDs, especially CDs from credit unions. They often have strings attached that could make it harder to open an account or maximize your earnings.

You might not earn as much as you expect

Before you get too excited about a CD, it's worth calculating how much you'll earn. For example, let's say you open that 5-month CD with a 9.50% APY. You deposit the maximum $3,000. After five months, you'll have earned $115.62.

Not a bad return by any means. And if you don't qualify for that CD, there are plenty more with high APYs. But if a CD has a short term or a maximum deposit, that will limit how much money you can make.

Is a CD right for your savings?

There are a few issues with using CDs for your savings:

• They charge an early withdrawal penalty. You need to keep your money deposited the entire term, so a CD wouldn't work well for your emergency fund.
• You usually can't add more money to a CD later. That's problematic if you're using a CD for a savings goal, such as a down payment on a home, and you want to add money to it every month.
• They're not the best long-term investment. If you're trying to build wealth and your retirement savings, the stock market offers much larger returns than CDs.

For those reasons, I've never been a fan of CDs. I prefer high-yield savings accounts, which have similar rates and much more flexibility.

That's not to say CDs don't have any value. They're a good way to lock in an APY while rates are high. If you have some savings sitting around that you won't need in the immediate future, a CD could be the way to go. But if one of those CDs with big APYs has caught your eye, make sure to read up on all the terms first.