Why I won’t be opening CDs in 2024 even though rates are still around 5%

The Federal Reserve’s long-awaited first rate cut finally came on September 18, but CD rates (especially short-term CDs) are still quite high at the moment. As of this writing, the top rate on our list of the best 6-month CD rates is 4.90%—not bad!

But there is another FOMC (Federal Open Market Committee) meeting in a few weeks, and we expect to see another rate cut on November 7th at the conclusion of that meeting. And once that happens, it’s likely that banks will also cut rates on consumer accounts (such as certificates of deposit and savings accounts).

I could rush to open the CD before this happens and lock in a rate of around 5%. But I’m not going to do that – here’s why.

CDs don’t suit my investment needs

At the ripe age of 40, I finally had a retirement account that I opened a few months ago and transferred money into every week. I’m feeling very behind on saving for retirement, so I’m putting all my money into investments that have better returns over the long term, namely ETFs that track the S&P 500 Index. Its average annual return over the last 50 years is around 10%, which is basically unheard of for CDs, especially over such a long period.

Our picks for the best high-yield savings accounts of 2024

American Express® High Yield Savings APY 4.10% Tariff information A circle with the letter I in it. Interest yield 4.10% per annum as of October 21, 2024 Member of the Federal Deposit Insurance Corporation (FDIC).	APY 4.10% Tariff information A circle with the letter I in it. Interest yield 4.10% per annum as of October 21, 2024	Min. earn $0
Capital One 360 ​​Productivity Savings APY 4.10% Tariff information A circle with the letter I in it. The most current rates can be found on the Capital One website. Announced annual percentage yield (APY) is variable and accurate as of September 27, 2024. Rates may be changed at any time before or after account opening. Member of the Federal Deposit Insurance Corporation (FDIC).	APY 4.10% Tariff information A circle with the letter I in it. The most current rates can be found on the Capital One website. Announced annual percentage yield (APY) is variable and accurate as of September 27, 2024. Rates may be changed at any time before or after account opening.	Min. earn $0
CIT Platinum Savings APY 4.70% APY on balances $5,000 or more. Tariff information A circle with the letter I in it. 4.70% APY on balances $5,000 or more; otherwise 0.25% APY Min. earn $100 to open an account, $5,000 for maximum annual profit. Member of the Federal Deposit Insurance Corporation (FDIC).	APY 4.70% APY on balances $5,000 or more. Tariff information A circle with the letter I in it. 4.70% APY on balances $5,000 or more; otherwise 0.25% APY	Min. earn $100 to open an account, $5,000 maximum annual rate.

Because I don’t want to waste any more time, I don’t use CDs for my long-term savings. Instead, a highly rated traditional IRA with a robo-advisor does the heavy lifting for me.

My savings account is better for me than a CD.

Another reason I’m still avoiding CDs is because my savings account satisfies my need for high interest rates and easy access to my cash. Let’s take a closer look.

Interest rate

The APY on my high yield savings account is still the same as what I earn on CDs. Yes, my savings account has a variable interest rate, whereas with a CD, that 4-5% rate will be locked in for the life of the term. This return guarantee still isn’t worth to me what I would give up – liquidity (more on that below).

I will likely see the current 4% rate I receive on my savings continue to fall as the Federal Reserve continues to cut rates further, and yes, that will be a bummer. But I can rest easy knowing that my money is available whenever I need it, and I won’t have to pay early withdrawal fees like I would if I had to terminate a CD early.

Liquidity

I recently had to dip into my emergency fund for the first time to cover my very first renovation as a new homeowner. I had an HVAC technician visit me to check my system and make sure everything was working and it turned out that my boiler needed some pretty minor repairs. Between inspection and repair I received a bill for $776.

Luckily, I had an emergency fund to draw from, and since it’s in my savings account, it was easy to transfer money into my checking account to pay off the credit card I used to pay the bill. (Whenever you can earn bonus points, you should do so.)

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Plus I just don’t have enough money saved up for a CD. I have an emergency fund and I have small amounts of money in different savings pots within my HYSA that are reserved for expenses like a new TV in the living room I’m buying next month, a few short trips I’m taking this fall , and my quarterly tax payments (gotta love the freelance life). Of course, it’s not worth opening a very short-term CD to store my new TV money – I’ll likely earn 4% on it just by leaving it in my savings account for another month.

Are CDs Right for You?

Ultimately, CDs just don’t cut it for me, despite their still-attractive prices. But they may be right for you, especially if you know for sure (as much as you can in this life) that you won’t need the money you put into them until the expiration date.

If you have $10,000 that you plan to use as a down payment on a home purchase in a year, be sure to look at CDs. Chances are, you can lock in a great rate on an annual CD and make $400 or $500 on your money—and the threat of an early withdrawal penalty could mean you’ll be even more motivated to use that money to make a purchase instead Houses. because of the temptation to use it for something else before the time comes.

Personal finance is just that, personal. If CDs are on your radar, I recommend you take a closer look at them sooner rather than later. Another Fed rate cut is looming (remember the FOMC meeting is November 6-7), so don’t get caught on the wrong side of lower CD rates.