4 Signs You Should Skip CDs Despite the 4% Rates

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Certificates of deposit (CDs) are simply not the best choice for many people’s savings. There are a few good things about CDs, like fixed interest and FDIC insurance. But CDs have a few big downsides, too — the biggest being early withdrawal penalties.Alert: highest cash back card we’ve seen now has 0% intro APR into 2026
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!
Click here to read our full review for free and apply in just 2 minutes. If you have to take cash out of the CD early, you’ll owe penalties that can gobble up most (or all) of the interest you were hoping to earn. Because CDs are so inflexible, even with 4.00% APY or higher, they’re not the right fit for many people’s financial goals.Here are a few signs that you should skip CDs — even if the APYs are higher than they are for savings accounts.1. You don’t have a solid emergency fundCDs are not a good place to hold any cash that you might need tomorrow, so don’t use a CD for your emergency savings. If you don’t already have a few months’ worth of income in an emergency fund — and many Americans do not — you should not open a CD.If you’re still building up your emergency fund, or even if you have plenty of extra non-emergency cash but just don’t want to commit to a CD term, open a high-yield savings account instead. Check out our list of the best savings accounts that offer high APYs.High-yield savings accounts give you an easy way to grow your cash reserves faster, and let you control when and how to use your money — without penalties.2. You’re saving for a short-term goalAnother big problem with CDs is that they’re not the best way to grow your money if you’re saving for a specific short-term financial goal. How soon do you need the money that you’re putting into a CD? Ask yourself whether you’re saving for:A vacation in six monthsA wedding in one yearA new car in two yearsA down payment on a house in three yearsOpening a CD isn’t always the best way to save for a short-term goal because your plans might change. Unless you know exactly when you’ll need your funds, you may want to avoid CDs; they’re too inflexible for the reality of many people’s financial lives.What if you find your dream house sooner than expected but you can’t get cash out of your 3-year CD without paying early withdrawal penalties? What if your car breaks down and you need to replace it now, not in two years?For many short-term financial goals, you’re better off keeping your cash in a high-yield savings account (or money market account). Even if your savings account earns a slightly lower APY than you’d get from a CD, the flexibility and peace of mind is worth it.3. You’re saving for a long-term goalCDs aren’t the best place to keep money that you might need now or even soon. So what about long-term money that you need later?Here’s another problem with CDs: If you can afford to lock up your money in a long-term CD (like for three years or five years), you might want to just invest that money in a brokerage account instead.If your investment timeline is longer than three years, and if you’re willing to accept some investment risk, a relatively low-yielding CD is not the best place to keep your money. You could potentially earn higher returns by investing that cash in a diversified portfolio of stock and bond ETFs, money market funds, and other investments.4. You don’t have tens of thousands of dollars to spareUltimately, the best reason to open a CD is when you have lots of cash and you don’t need it to save for retirement or to invest for long-term goals. For example, CDs could be right for retirees who have a large amount of cash because they need to earn safe, steady fixed income.But the typical American only has about $8,000 of cash in the bank — including savings accounts and checking accounts. Let’s say your savings account pays 1% lower APY than a CD — that means every $1,000 of savings earns $10 less per year. Is it worth locking up your precious cash in a CD just to get an extra $10? For most people, the answer is no.Bottom lineDon’t worry about earning the highest possible yield if it means running the risk of early withdrawal penalties. Instead, keep your cash in a high-yield savings account, keep control of your money, and keep building up your savings.Alert: highest cash back card we’ve seen now has 0% intro APR into 2026
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!
Click here to read our full review for free and apply in just 2 minutes. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
Motley Fool Money does not cover all offers on the market. Editorial content from Motley Fool Money is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.”}]] [[{“value”:”

Certificates of deposit (CDs) are simply not the best choice for many people’s savings. There are a few good things about CDs, like fixed interest and FDIC insurance. But CDs have a few big downsides, too — the biggest being early withdrawal penalties.

Alert: highest cash back card we’ve seen now has 0% intro APR into 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

If you have to take cash out of the CD early, you’ll owe penalties that can gobble up most (or all) of the interest you were hoping to earn. Because CDs are so inflexible, even with 4.00% APY or higher, they’re not the right fit for many people’s financial goals.

Here are a few signs that you should skip CDs — even if the APYs are higher than they are for savings accounts.

1. You don’t have a solid emergency fund

CDs are not a good place to hold any cash that you might need tomorrow, so don’t use a CD for your emergency savings. If you don’t already have a few months’ worth of income in an emergency fund — and many Americans do not — you should not open a CD.

If you’re still building up your emergency fund, or even if you have plenty of extra non-emergency cash but just don’t want to commit to a CD term, open a high-yield savings account instead. Check out our list of the best savings accounts that offer high APYs.

High-yield savings accounts give you an easy way to grow your cash reserves faster, and let you control when and how to use your money — without penalties.

2. You’re saving for a short-term goal

Another big problem with CDs is that they’re not the best way to grow your money if you’re saving for a specific short-term financial goal. How soon do you need the money that you’re putting into a CD? Ask yourself whether you’re saving for:

A vacation in six monthsA wedding in one yearA new car in two yearsA down payment on a house in three years

Opening a CD isn’t always the best way to save for a short-term goal because your plans might change. Unless you know exactly when you’ll need your funds, you may want to avoid CDs; they’re too inflexible for the reality of many people’s financial lives.

What if you find your dream house sooner than expected but you can’t get cash out of your 3-year CD without paying early withdrawal penalties? What if your car breaks down and you need to replace it now, not in two years?

For many short-term financial goals, you’re better off keeping your cash in a high-yield savings account (or money market account). Even if your savings account earns a slightly lower APY than you’d get from a CD, the flexibility and peace of mind is worth it.

3. You’re saving for a long-term goal

CDs aren’t the best place to keep money that you might need now or even soon. So what about long-term money that you need later?

Here’s another problem with CDs: If you can afford to lock up your money in a long-term CD (like for three years or five years), you might want to just invest that money in a brokerage account instead.

If your investment timeline is longer than three years, and if you’re willing to accept some investment risk, a relatively low-yielding CD is not the best place to keep your money. You could potentially earn higher returns by investing that cash in a diversified portfolio of stock and bond ETFs, money market funds, and other investments.

4. You don’t have tens of thousands of dollars to spare

Ultimately, the best reason to open a CD is when you have lots of cash and you don’t need it to save for retirement or to invest for long-term goals. For example, CDs could be right for retirees who have a large amount of cash because they need to earn safe, steady fixed income.

But the typical American only has about $8,000 of cash in the bank — including savings accounts and checking accounts. Let’s say your savings account pays 1% lower APY than a CD — that means every $1,000 of savings earns $10 less per year. Is it worth locking up your precious cash in a CD just to get an extra $10? For most people, the answer is no.

Bottom line

Don’t worry about earning the highest possible yield if it means running the risk of early withdrawal penalties. Instead, keep your cash in a high-yield savings account, keep control of your money, and keep building up your savings.

Alert: highest cash back card we’ve seen now has 0% intro APR into 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
Motley Fool Money does not cover all offers on the market. Editorial content from Motley Fool Money is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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