4 Signs You Should Skip CDs Despite the 4% Rates

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With annual percentage yields (APYs) on certificates of deposit (CDs) hitting 4.00% or higher, it might seem like the perfect time to lock in your money and earn some guaranteed returns. But while CDs can be a great low-risk savings option, they’re not right for everyone. For some people, putting money into a CD could actually work against their financial goals.Alert: highest cash back card we’ve seen now has 0% intro APR into 2026
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Click here to read our full review for free and apply in just 2 minutes. Before you commit, here are four signs you might want to skip CDs — even with today’s high rates.1. You might need the money before the term endsCDs require you to lock in your money for a set period, which can range from a few months to several years. If you withdraw your money early, you’ll likely face penalty fees, which can eat into your interest earnings — or even your principal.For example, a 12-month CD with a 4.50% APY might sound great, but if an unexpected expense pops up six months in, you could lose several months’ worth of interest when cashing out early.If you might need access to your cash, consider opening a high-yield savings account (HYSA) instead. Many online banks offer 4.00% APY or more on savings accounts, giving you flexibility without the commitment.Have your cash languishing in a low interest account? Open a high-yield savings account today to potentially earn nearly 10 times more on your money.2. You have high-interest debtIf you’re carrying high-interest debt — like credit card balances or payday loans — putting money into a CD isn’t the best move. While earning a 4% return on a CD might seem appealing, it doesn’t make sense if you’re paying 20% or more in interest on credit card debt.For example, if you have $5,000 in credit card debt at 20% interest and put $5,000 into a CD earning 4%, you’re still losing 16% in net interest — and potentially more due to lost compound interest. That’s money that could have been used to pay down your debt faster.Consider using a 0% APR balance transfer credit card to pay off your debt without incurring more interest. Once your high-interest debt is under control, then you can explore safer savings options like CDs.3. You want higher long-term growthCDs offer stable returns, but they generally don’t keep up with long-term inflation or the growth potential of investing in stocks. While a 4% CD might sound great now, historically, the stock market has averaged 10% annual returns over the long run (as measured by the S&P 500 Index).If you’re saving for a long-term goal — like retirement, a home down payment, or growing wealth — then locking your money in a CD could mean missing out on thousands of dollars you could earn from a different investment.If you have a longer time horizon and can handle some risk, consider opening a brokerage account and investing in a low-cost index fund or a diversified investment portfolio. While there are no guarantees, investing has historically outperformed CDs over the long run.4. You don’t have a solid emergency fundCDs aren’t a great place for emergency savings. Since they require you to keep your money invested, they don’t provide the easy access you’d need in case of a job loss, medical emergency, or unexpected expense.If you already have six months’ worth of expenses saved in a high-yield savings account, then a CD could be a safe place for extra cash. But if you’re still building your emergency fund, putting money into a CD could leave you short on cash when you need it most.Is a CD right for you?While CDs can be a great low-risk option, they’re not the right fit for everyone. If you might need quick access to your money, want higher long-term returns, or are still building your emergency fund, you may be better off with a high-yield savings account or an investment strategy.However, if you have extra cash you won’t need for a while and want a safe, guaranteed return, a CD could still be a smart choice. Just make sure it aligns with your financial goals before locking up your money.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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.”}]] [[{“value”:”

With annual percentage yields (APYs) on certificates of deposit (CDs) hitting 4.00% or higher, it might seem like the perfect time to lock in your money and earn some guaranteed returns. But while CDs can be a great low-risk savings option, they’re not right for everyone. For some people, putting money into a CD could actually work against their financial goals.

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.

Before you commit, here are four signs you might want to skip CDs — even with today’s high rates.

1. You might need the money before the term ends

CDs require you to lock in your money for a set period, which can range from a few months to several years. If you withdraw your money early, you’ll likely face penalty fees, which can eat into your interest earnings — or even your principal.

For example, a 12-month CD with a 4.50% APY might sound great, but if an unexpected expense pops up six months in, you could lose several months’ worth of interest when cashing out early.

If you might need access to your cash, consider opening a high-yield savings account (HYSA) instead. Many online banks offer 4.00% APY or more on savings accounts, giving you flexibility without the commitment.

Have your cash languishing in a low interest account? Open a high-yield savings account today to potentially earn nearly 10 times more on your money.

2. You have high-interest debt

If you’re carrying high-interest debt — like credit card balances or payday loans — putting money into a CD isn’t the best move. While earning a 4% return on a CD might seem appealing, it doesn’t make sense if you’re paying 20% or more in interest on credit card debt.

For example, if you have $5,000 in credit card debt at 20% interest and put $5,000 into a CD earning 4%, you’re still losing 16% in net interest — and potentially more due to lost compound interest. That’s money that could have been used to pay down your debt faster.

Consider using a 0% APR balance transfer credit card to pay off your debt without incurring more interest. Once your high-interest debt is under control, then you can explore safer savings options like CDs.

3. You want higher long-term growth

CDs offer stable returns, but they generally don’t keep up with long-term inflation or the growth potential of investing in stocks. While a 4% CD might sound great now, historically, the stock market has averaged 10% annual returns over the long run (as measured by the S&P 500 Index).

If you’re saving for a long-term goal — like retirement, a home down payment, or growing wealth — then locking your money in a CD could mean missing out on thousands of dollars you could earn from a different investment.

If you have a longer time horizon and can handle some risk, consider opening a brokerage account and investing in a low-cost index fund or a diversified investment portfolio. While there are no guarantees, investing has historically outperformed CDs over the long run.

4. You don’t have a solid emergency fund

CDs aren’t a great place for emergency savings. Since they require you to keep your money invested, they don’t provide the easy access you’d need in case of a job loss, medical emergency, or unexpected expense.

If you already have six months’ worth of expenses saved in a high-yield savings account, then a CD could be a safe place for extra cash. But if you’re still building your emergency fund, putting money into a CD could leave you short on cash when you need it most.

Is a CD right for you?

While CDs can be a great low-risk option, they’re not the right fit for everyone. If you might need quick access to your money, want higher long-term returns, or are still building your emergency fund, you may be better off with a high-yield savings account or an investment strategy.

However, if you have extra cash you won’t need for a while and want a safe, guaranteed return, a CD could still be a smart choice. Just make sure it aligns with your financial goals before locking up your money.

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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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