Are Certificates of Deposit Still Worth It?

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Updated on Friday, May 31, 2019

If you are looking to open a certificate of deposit (CD) anytime soon, you need to act fast. Your window of opportunity for getting a great rate may be closing.

The Fed has paused rate increases citing economic uncertainty, which has chilled CD rate increases in turn. We’re even seeing a handful of CD rate leaders decreasing their rates as the Fed continues to hold interest rates steady.

Not all hope is lost, however. Let’s take a deep dive into what’s driving today’s CD rates, what we can expect from rates in the future and when it’s a good idea to open a CD.

Are CDs still worth it?

There’s no question that CDs are still a worthwhile investment. But if you plan to put money into a CD, it’s important that you lock in your rates sooner rather than later. The Fed’s recent rate hike cycle, which began in December 2015 and lasted until December 2018, hauled CD rates out of the doldrums where they’d been since the financial crisis. This period has offered investors some great opportunities.

Since the Fed has chosen to pause on policy, banks and credit unions are also pausing — even dropping — their competitive rates. The best CD rates have already seen cuts in the past few months due to the halt.


“The big internet banks have been slower to move on their online CDs, but in the last few months, we’ve seen several of them cut rates 5-15 basis points on some CD maturities,” said Ken Tumin, founder of LendingTree-owned Big industry leaders like Ally Bank, Capital One, PenFed and CD Bank are among the latest institutions to cut rates.

The best 5-year CDs remain above 3.00% APY. While these rates are down a bit over the past couple months, they still offer great long-term savings deals. You can lock in these high rates now to guarantee your returns and protect against the potential of more CD rate cuts.

You’ll find that the best 1-year CD rates aren’t far behind, reaching closer to 2.90% APY. That offers a shorter-term savings vehicle.

With both 5-year and 1-year CDs still performing well, it’s a good time to create a CD ladder. That way, you can take advantage of today’s rates, protect against potential future rate cuts and still leave room for potentially higher rates as well. Just make sure you’re opening CDs with high rates; otherwise, your earnings may not be as beneficial as you’d like them to be in the long run.

The future of CD rates

While we’re still in a good enough spot right now to lock in solid CD rates, signs are pointing to the possibility of further rate cuts in the near future. Fed funds futures are showing at least one rate cut by 0.25% before the end of 2019. Slowing economic growth — both domestically and internationally — as well as U.S. trade uncertainties, have been causes for concern. Any or all of these factors could tip the Fed toward a rate cut.

When should I open a CD?

No matter what kind of CD climate you’re in, CDs are still worth it as a savings product. They offer stable and guaranteed returns no matter what (unless you make an early withdrawal) since you lock in your rate at opening. This differs from savings or money market accounts whose rates are variable and can change without warning.

Plus, CDs can serve several savings goals. For instance, they’re a safe place to stash your extra cash if you’ve already maxed out your other savings accounts. You don’t have to worry about moving your money around between accounts if they’re parked in an FDIC-insured CD.

CDs are also great for long-term savings since they lock away your money for the entire term until maturity. So if you want to set aside money for a down payment in five years, for example, placing money in a CD can result in guaranteed earnings. Plus, it helps you avoid dipping into those funds, lest you incur a hefty early withdrawal penalty.

When are CDs not worth it?

Of course while CDs work for some savings goals, they won’t be worth your time in other situations. For one, don’t open a CD if you need quick and flexible access to your money. CDs lock your money in for the whole term, whether that’s six months or 10 years. Within that time, you can’t withdraw money without facing a penalty that’s often worth more than your withdrawal. (Want to avoid that commitment? Check out the best no-penalty CDs here.)

So if there’s a chance you might need that money in the short term, avoid opening a CD. Instead, consider high-yield savings accounts, which allow for more flexibility, especially if you’re creating an emergency fund where you’ll need fast access to your money in a pinch.

You also may not want to open a CD if you’re in an increasing-rate climate. It helps to shop for CD rates before really committing. If you’re noticing that banks are competing for the highest rate and continue to boost their rates, then perhaps wait it out. That way, you can get the best deal available. This is also where CD ladders can come in handy, since you can open both short- and long-term CDs to hedge your bets on where CD rates will go.