4 Signs You Should Skip CDs Despite the 4% Rates
KEY POINTS
- You have high-interest debt to tackle first.
- Not having access to your cash is a big downside of CDs.
- Make sure you have six months' expenses saved in an emergency account.
With annual percentage yields (APYs) on certificates of deposit (CDs) hitting 4.00% or higher, it might seem like the perfect time to lock in your money and earn some guaranteed returns. But while CDs can be a great low-risk savings option, they're not right for everyone. For some people, putting money into a CD could actually work against their financial goals.
Before you commit, here are four signs you might want to skip CDs -- even with today's high rates.
1. You might need the money before the term ends
CDs require you to lock in your money for a set period, which can range from a few months to several years. If you withdraw your money early, you'll likely face penalty fees, which can eat into your interest earnings -- or even your principal.
For example, a 12-month CD with a 4.50% APY might sound great, but if an unexpected expense pops up six months in, you could lose several months' worth of interest when cashing out early.
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Product | APY | Min. to Earn | |
![]() American Express® High Yield Savings
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APY
3.80%
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3.80% annual percentage yield as of February 18, 2025. Terms apply.
Min. to earn
$0
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3.80%
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3.80% annual percentage yield as of February 18, 2025. Terms apply.
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![]() Capital One 360 Performance Savings
Member FDIC.
APY
3.70%
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See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Feb. 6, 2025. Rates are subject to change at any time before or after account opening.
Min. to earn
$0
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3.70%
Rate info
See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Feb. 6, 2025. Rates are subject to change at any time before or after account opening.
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$0
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![]() Barclays Tiered Savings
Member FDIC.
APY
rate updating
Rate info
Balances less than $250,000 earn (rate updating), and balances greater than $250,000 earn (rate updating) APY.
Min. to earn
$0
Open Account for Barclays Tiered Savings
On Barclays' Secure Website. |
rate updating
Rate info
Balances less than $250,000 earn (rate updating), and balances greater than $250,000 earn (rate updating) APY.
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$0
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If you might need access to your cash, consider opening a high-yield savings account (HYSA) instead. Many online banks offer 4.00% APY or more on savings accounts, giving you flexibility without the commitment.
Have your cash languishing in a low interest account? Open a high-yield savings account today to potentially earn nearly 10 times more on your money.
2. You have high-interest debt
If you're carrying high-interest debt -- like credit card balances or payday loans -- putting money into a CD isn't the best move. While earning a 4% return on a CD might seem appealing, it doesn't make sense if you're paying 20% or more in interest on credit card debt.
For example, if you have $5,000 in credit card debt at 20% interest and put $5,000 into a CD earning 4%, you're still losing 16% in net interest -- and potentially more due to lost compound interest. That's money that could have been used to pay down your debt faster.
Consider using a 0% APR balance transfer credit card to pay off your debt without incurring more interest. Once your high-interest debt is under control, then you can explore safer savings options like CDs.
3. You want higher long-term growth
CDs offer stable returns, but they generally don't keep up with long-term inflation or the growth potential of investing in stocks. While a 4% CD might sound great now, historically, the stock market has averaged 10% annual returns over the long run (as measured by the S&P 500 Index).
If you're saving for a long-term goal -- like retirement, a home down payment, or growing wealth -- then locking your money in a CD could mean missing out on thousands of dollars you could earn from a different investment.
If you have a longer time horizon and can handle some risk, consider opening a brokerage account and investing in a low-cost index fund or a diversified investment portfolio. While there are no guarantees, investing has historically outperformed CDs over the long run.
4. You don't have a solid emergency fund
CDs aren't a great place for emergency savings. Since they require you to keep your money invested, they don't provide the easy access you'd need in case of a job loss, medical emergency, or unexpected expense.
If you already have six months' worth of expenses saved in a high-yield savings account, then a CD could be a safe place for extra cash. But if you're still building your emergency fund, putting money into a CD could leave you short on cash when you need it most.
Is a CD right for you?
While CDs can be a great low-risk option, they're not the right fit for everyone. If you might need quick access to your money, want higher long-term returns, or are still building your emergency fund, you may be better off with a high-yield savings account or an investment strategy.
However, if you have extra cash you won't need for a while and want a safe, guaranteed return, a CD could still be a smart choice. Just make sure it aligns with your financial goals before locking up your money.
Our Research Expert
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