3 Reasons Not to Open a CD in August 2025, Even With Rates Over 4.00%

Certificates of deposit (CDs) are the best investment that I want nothing to do with.

With fixed APYs of up to 4.00% or so, CDs can protect your savings from inflation and falling interest rates for months or years.

So why wouldn't you open a CD now, especially given that yields are high, and experts expect interest rates to drop later this year?

For me, there are a few reasons, and they all boil down to one thing: CDs are best for people who want to preserve wealth, not grow it. I'll show you why.

1. The stock market offers higher long-term returns

Unlike a CD, the stock market offers no guarantees. You can lose money you've invested -- especially if you sell stocks during a downturn.

However, history shows that buying stocks and holding them for years is one of the best ways to build serious wealth. The S&P 500 Index, which represents over half the U.S. stock market, has gained an average of 10% per year since 1957. That's more than double today's best CD rates.

And you can invest in the entire S&P 500 at once with an index fund. You get instant diversification, which lowers your risk. You can invest as little or as much as you want, and index funds charge very low fees. Legendary investor Warren Buffett even recommends them for ordinary savers.

I've been investing most of my 401(k) money in an index fund for the past 13 years, and that's the biggest reason I'm on track to retire early (knocks on wood).

2. High-yield savings accounts are better for emergency savings

High-yield savings accounts (HYSAs) offer roughly the same rates as CDs right now -- around 4.00% APY on the high end. And unlike CDs, HYSAs allow you to withdraw your cash at any time, without penalty.

When you cash out a CD before its maturity date, you typically have to give up several months' worth of interest. That's not ideal if you find yourself in need of money on short notice.

3. You're not trying to preserve wealth or save for a near-term purchase

Here's where it comes down to your personal situation.

CDs don't provide the high long-term returns of the stock market or the flexibility of a savings account. But they do protect your cash while providing some guaranteed growth.

They're especially good for two things:

• Preserving the wealth you've already built up. This makes a lot of sense for people who are in or near retirement, for example. They don't want to take as much risk with their savings, and they can also leave some of it untouched for a while.
• Saving for a purchase you're making in three months to five years. If you're planning to buy a home or a car within the next few years, for example, it could be smart to set some money aside in a CD. You can lock in a high APY now, then reap the rewards when the CD matures and you're ready to buy.

If that sounds like you, then now may be a good time to shop around for the best CD rates and open an account.

As for me? I'm still about two decades from retirement, and I'm very much in "growth mode." I have enough savings to cover an emergency, and I have plenty of time to ride out the market's ups and downs, so all my spare income goes into my 401(k) or my IRA.

If you're in the same boat, then CDs probably aren't the best place for your money right now.