Here’s Where to Put Your Money Now That 5% CD Rates Are Going Away

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It’s harder to find 5% CDs. Here are some alternative options for putting your money to work. [[{“value”:”

For months on end, CDs seemed like a great deal. After all, who wouldn’t want a virtually risk-free 5% return?

But the days of 5% CDs are pretty much over. You may get lucky and find a random CD that’ll still give you 5% on your money. But CD and the best savings account rates have fallen in recent weeks following the Federal Reserve’s mid-September rate cut. And since the Fed is expected to make more rate cuts over the next year, it’s fair to say that we won’t be seeing 5% CDs again anytime soon.

Of course, this doesn’t mean CDs have suddenly become a terrible deal. Many are still paying upward of 4%. If you have money you want to lock away in the bank for a year or two, a CD isn’t a bad option at all. Click here for a list of the best CD rates available today.

However, you may want to look outside of a CD now that rates are lower. Here are two solid options to consider.

1. A savings account

Today, a savings account won’t give you a higher interest rate on your money than a CD. If anything, you’re generally looking at earning less.

But one perk of a savings account over a CD is flexibility. With a CD, you have to commit to a preset term. And withdrawing your money early generally results in a costly penalty.

With a savings account, you can take withdrawals whenever you want. And that flexibility can be worth a lot.

In the coming year, borrowing rates are expected to fall in line with the Fed’s rate cuts. You may find yourself able to jump on a home-buying opportunity once mortgage rates settle down. With a savings account, you can withdraw funds for a home down payment at any time, whereas with a CD, you might get stuck waiting for it to mature and lose out on an opportunity.

2. A brokerage account or IRA

If you’re upset that you missed the boat on 5% CDs, how does a 10% return on your money sound? That’s the S&P 500’s average annual return over the past 50 years. And while past returns don’t guarantee future results, if you load up on stocks for a long period (say, 10 years or more), there’s a good chance you’ll enjoy similar returns in your portfolio.

So instead of putting your money into a CD now that rates are lower, open a top-rated brokerage account so you can start putting your money to work. A taxable brokerage account, like a savings account, gives you the flexibility to add or withdraw funds whenever you want.

However, if you’re interested in investing for the purpose of funding your retirement, consider opening an IRA instead. With an IRA, you can get a tax break on your contribution for extra savings.

That said, IRAs impose penalties for withdrawing your money before you reach age 59 1/2. Before you commit to an IRA, ensure you’re willing to wait that long. Click here for a list of the best IRAs to open.

And if you’re curious to know what sort of growth you might be looking at in a brokerage account or IRA, say you’ve got $5,000 available today. If you invest it at a 10% return over the next 30 years, it’ll be worth about $87,250.

You don’t have to completely write off CDs just because 5% rates aren’t available anymore. But you may also find that a savings account, taxable brokerage account, or IRA makes a lot more sense for you.

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