You Can Still Lock in a 5.00% APY CD. But Should You?

Cooling inflation has made things better for consumers, but it hasn't been kind to savers. Interest rates on savings accounts and certificates of deposit (CDs) have slowly begun to drop with bigger dips expected later in the year into 2025.

CDs with 5.00% APYs aren't as common as they were just a few months ago, but they are still out there if you know where to look. The most important question to ask yourself these days isn't "Can I find a 5.00% APY CD?" It's "Should I open one at all?" Here's how to decide.

The upside to opening a 5.00% APY CD

You'll need to open a short-term CD -- one with a term of 12 months or less -- if you hope to get a 5.00% APY. Long-term CD rates never got quite that high. So one potential upside is that, while you're locking your money away, you're not doing so for too long. There's less of a risk that you'll need to access your savings before the CD matures, so there's a smaller chance of incurring early withdrawal penalties.

Then, there's the APY itself. CD APYs are locked in for the full term. With many expecting rates to fall in the latter half of 2024 into next year, many see this as a prime opportunity to snag a high rate before they're gone. If you wait a few months or a year, it's highly likely that you'll have to settle for a lower rate.

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.

Your earnings depend on your exact APY and how much you invest in the CD. If you invested $10,000 in a 1-year CD with a 5.00% APY, you'd earn $500. That's among the highest rates of return you'll find without investing your money in the stock market.

The downside to opening a 5.00% APY CD

The upsides certainly sound persuasive, but it's important to look at the whole picture before making your decision. Opening a 5.00% APY CD still requires locking your cash away for a while. This isn't advisable if you plan to keep the money as emergency savings or for near-term expenses. A high-yield savings account is a better home for these funds.

Then, there's the fact that your high interest rate isn't guaranteed for very long. If CD interest rates drop sharply, you could earn more by investing in a long-term CD with a lower APY than in several smaller short-term CDs.

For example, if you invested $1,000 in a 1-year CD with a 5.00% APY, you'd have $1,050 when the CD matures. Let's say you want to invest your $1,050 in a new 1-year CD, but interest rates have now dropped to 3.00% APY. Your final balance at the end of that year would be $1,081.50. If the best 1-year CD rates drop to 2.00% APY the following year, your money would only grow to $1,103.13.

By contrast, if you put your $1,000 into a 3-year CD right now earning a 4.00% APY, your final balance at the end of those three years would be $1,216.54. So you'd come out ahead, even though your initial APY was lower.

Ultimately, you're in charge of your money. So only you can decide whether a CD is a good fit for you right now. But if you prefer having easy access to your cash, a high-yield savings account could be a better fit.