If You Think Today’s CD Rates Are Amazing, Just Wait Till You See What the Stock Market Can Do for Your Money

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Today’s CD rates are pretty impressive. But read on to see why stocks are a better place for your money on a long-term basis. [[{“value”:”

There’s a reason why certificates of deposit (CDs) have been such a popular choice for savers this year. Since the start of 2024, shorter-term CD rates have been sitting at or around 5%.

But as the Federal Reserve moves forward with plans to cut interest rates, CD rates are likely to start falling. Even if CD rates dip into the 4% range and stay there for quite some time, though, that’s still a pretty awesome return given the risk-free nature of CDs.

It’s true that opening a CD carries the risk of facing an early withdrawal penalty. But if you leave your money alone until your CD matures, that won’t happen. And as long as you put your money into a bank that’s FDIC-insured and limit your deposit to $250,000 (which you’re probably doing anyway), you don’t risk losing any of your cash in the event of a bank collapse.

But as impressive as today’s CD rates may be, you should know that over time, investing in stocks is likely to pay you a lot more. So before you rush to open as many CDs as you can at a top rate, understand how much more you stand to gain with a stock portfolio instead.

A return that CDs just won’t beat

A 5% return on your money from CDs might seem like a great deal — that is, until you realize that the stock market’s average annual return over the past 50 years has been 10%. And that 10% accounts for years when the stock market did well, but also years when it crashed.

What this should tell you is that if you put money into the stock market and hang onto your portfolio for many years, you’re likely to come away with an impressive return on your money.

Let’s imagine you have $10,000 you’re looking to invest. If you put it into a stock portfolio and get a 10% return each year, then in 30 years, your money could be worth almost $175,000. In 40 years, it could be worth about $452,000. You won’t get anywhere close to that with CDs, especially given that CDs typically pay a lot less interest than 5%.

How to get started investing in stocks

At this point, you may be convinced that a stock portfolio is a much better place for your money than a CD. But opening a CD is pretty easy. You shop around for the best rate and then put in an application with a bank. There’s not a ton of thought that goes into it beyond that.

With stocks, you need to be careful to choose the right investments. You want to put your money into companies that are on solid financial footing. You also want to diversify your holdings so you’re investing across a range of industries.

If the idea of researching stocks is scary or daunting, there’s an easy way to put your money to work in the stock market without having to stress or spend a ton of time. Simply choose an S&P 500 ETF (exchange-traded fund) in place of individual stocks.

The S&P 500 index is generally used as a measure of the stock market’s performance on a whole. And it’s an easy way to get instant diversification in your portfolio without having to do the legwork of researching tons of stocks. So if you’re ready to say goodbye to CDs and put your money into stocks instead, don’t hesitate to fall back on an S&P 500 ETF and let it do the heavy lifting for you.

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