Have You Been Holding Off on Opening a CD? Here's Why 2024 Could Be a Good Time

If the Fed cuts interest rates in 2024 as many economists expect, it could mean good news for the economy -- but bad news for your savings. If interest rates decline in 2024, your bank savings account APY is likely to go down, too. For example, if interest rates get cut by 1 percentage point by the end of 2024, the best high-yield savings accounts might only pay 4% APY, instead of the 5% APY (or higher) that they were paying as of January 2024.

Worried about interest rate cuts? There's a simple money move that can help your savings grow faster in 2024 and beyond: Buy a certificate of deposit (CD).

Let's look at a few reasons why CDs are making a comeback in 2024 -- and why they could be a good choice for your savings.

Interest rates (and CD yields) might go down in 2024

If the Fed cuts interest rates later this year, the APY you can get today on a CD might be the highest interest rate you can get for a while. Locking in a higher APY today can help you earn more on your CD savings, compared to what you would earn if interest rates get cut. If you believe that interest rates are about to go down, it might be time to open a CD.

But keep in mind: No one knows for sure what will happen next with interest rates. The Fed might hold interest rates steady, or even raise interest rates again in case of more inflation problems or other changes in the economy. There's no guarantee that any time is the perfect moment to open a CD. It all depends on your financial goals and what feels right to you.

CDs offer a guaranteed rate of interest on your savings

Even if you don't manage to predict the future, read the Fed's minds, or time the market perfectly, buying a CD in 2024 could be a smart move. Opening a CD lets you lock in a guaranteed rate of interest for a certain amount of time.

For example, as of Jan. 16, 2024, some of the best CDs are currently offering rates of:

• 5.00% APY for 1 year: Barclays Online CD (Min. deposit: $0)
• 4.50% APY for 1 year: Quontic CDs (Min. deposit $500)
• 4.40% APY for 1.5 years: Discover® Bank CD (Min. deposit $2,500)
• 5.05% APY for 1 year: Western Alliance Bank CD (Min. deposit $1)

Want to lock in your savings for a longer-term commitment? Here are some APYs you can get from the best 2-year, 3-year, and 5-year CDs (as of Jan. 16, 2024):

• Best 2-year CDs: up to 4.85% APY
• Best 3-year CDs: up to 4.45% APY
• Best 5-year CDs: up to 4.35% APY

The longer you commit your money to a CD, the lower your APY will be. That's because banks don't want to lock themselves into paying too much money for your deposits, especially if interest rates go down in the next two to five years. But depending on your time horizon and investment goals, a longer-term CD could be a good option -- and the APYs might not be this high again anytime soon.

If you have been undecided about where to put your cash savings, but know that you want a higher yield than a near-zero APY bank account, opening a CD in 2024 may give you peace of mind. Locking in a good interest rate on a CD can help you put your savings on autopilot, instead of being preoccupied about what to do with your money. If you want to earn a steady return on your cash savings, you might want to consider opening a CD in 2024.

Before you open a CD, be aware of this fee

CDs are not the right fit for everyone's personal finances. Unlike bank savings accounts or money market accounts which let you withdraw your cash whenever you want, even the best CDs typically require you to commit your money for a certain length of time. If you open a CD with a 12-month term, you're not allowed to take money out until the full 12-month term is up. If you run into an emergency and need your CD money sooner, you'll likely have to pay an early withdrawal penalty.

Read the fine print and make sure you understand how long you're committing your money to a CD, and what fees you would owe if you have to pull your money out before the CD term is up. Another option if you're worried about early withdrawals is to open a no-penalty CD. This type of CD gives you flexibility and a good APY. But keep in mind that not every bank or credit union offers no-penalty CDs, and a no-penalty CD will typically pay a lower APY than a standard certificate of deposit.

Bottom line: Until the Fed raised interest rates aggressively during 2022-2023, most banks' CD yields were nowhere near competitive with the stock and bond markets, or even compared to the best bank savings accounts. But CDs are making a comeback with today's high APYs.

Depending on your investment goals, how much cash you have in emergency savings, and your personal risk tolerance, buying a CD in 2024 could help you lock in a higher interest rate on your savings. If you believe that interest rates are about to get cut, CDs are worth considering as a place to stash your (non-emergency) savings.