Some CDs Are Still Paying Close to 5%. Here’s Why I Wouldn’t Open One

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

Although CD rates are falling, they’re still competitive. Here’s why this writer is putting her money elsewhere. [[{“value”:”

Just a few months ago, 5% CDs were pretty easy to find. Unfortunately, the days of 5% CDs are largely behind us. The Federal Reserve opted to lower its benchmark interest rate by half-a-percentage-point in mid-September in response to slowing inflation. And when the Fed’s benchmark interest rate falls, savings account and CD rates tend to follow.

That said, even though CDs, for the most part, aren’t paying 5% anymore, you can still lock in a pretty competitive rate in the 4% range. That’s not such a raw deal given that with CDs, your principal deposit is protected as long as you bank somewhere that’s FDIC-insured and limit your deposit to $250,000.

But although today’s CD rates are still solid, I’m not motivated to open one. And the reason is that there’s a much more efficient way for me to grow my money.

I’m not willing to settle for lower returns

If I put $10,000 into a 12-month CD paying 4.5%, I’m guaranteed to earn $450 in interest. And that’s a good deal.

But what happens after 12 months? Given that the Fed is likely to continue lowering its benchmark interest rate, CD rates are likely to fall in the coming year. And even if that somehow doesn’t happen, I might earn a much higher return on my money over time by investing it instead of putting it into a series of CDs.

Over the past 50 years, the S&P 500 index’s average annual return has been 10%, accounting for good years and bad years. If I put $10,000 into a stock portfolio and I’m able to snag a 10% return, then in 20 years, I’m looking at growing that investment into $67,275.

Even if I were to earn 4.5% on my $10,000 for 20 years in a series of CDs, that only leaves me with $21,911. That’s a difference of over $45,000. And, well, why should I settle for $45,000 less?

Don’t sell yourself short

There’s only so much money to be gained by putting cash into CDs today — even with rates remaining pretty strong. That said, one reason you should choose a CD is if you have near-term plans for your money.

When you invest, you risk losing money, so you need a lengthy window to recover from market downturns. As a general rule, I try to only invest money if I think I won’t need it for about seven years or more.

If you have money you might need in a year or two, though, then a CD is a smart bet. You can check out this list of the best CD rates to lock in a great return on your money.

However, if you have a pile of cash you don’t expect to use for several years, then investing it could make you a lot richer over time. In that case, find a great online brokerage account and start putting your money to work.

It’s easy to be tempted with CDs given that rates aren’t so far off from 5%. But if you look at the big picture, you’ll realize that a stock portfolio could make you wealthier in the long run.

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.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

“}]] Read More