Forget About 5% CDs -- Here's Where You Should Put Your Savings Instead

Interest rates have come down quite a bit recently. If you've been looking for a way to keep earning a high APY on your savings, certificates of deposit (CDs) are a popular choice. These allow you to lock in an interest rate for the entire CD term.

The highest-paying CDs are still offering impressive rates. Some shorter-term CDs earn APYs of 4.5% to 5%. But CDs don't let you access your money at any time, so they're not the right place to put the bulk of your savings. Here's a better option.

Open a high-yield savings account for more flexibility and a competitive APY

The big drawback with CDs is that you can't make any withdrawals until the maturity date. For example, if you open a 1-year CD, you need to keep your money there for a year. If you need your money earlier, you'll be charged an early withdrawal penalty. That's the price you pay for a guaranteed APY.

Because of this restriction, a CD isn't a good choice for savings you may need at any time. You wouldn't want to put your emergency fund in a CD, to give you one example. If an emergency strikes halfway into your CD's term, you'll pay a penalty to get your money out.

You won't have that problem with a high-yield savings account. This type of account allows you to withdraw your money without penalty at any time, and you can still earn a high APY. Many high-yield savings accounts have rates equal to or even higher than what CDs offer.

Looking for a high-yield savings account? Consider the Western Alliance Bank High-Yield Savings Premier account. It has one of the highest rates I've found with a 4.30% APY, and there are no monthly fees. Click here to learn more and open an account today.

Invest your long-term savings to earn even more

High-yield savings accounts are a good choice for money you'll use in the next few years. For long-term savings, some people go with CDs so they have a guaranteed rate. Once again, there's potentially a better option: investing in the stock market.

At the time of this writing, you can earn 4% to 5% per year with high-yield savings accounts and CDs. The U.S. stock market, as represented by the S&P 500, averages about 10% per year over the past 50 years. Here's how much of a difference that makes on a $10,000 investment:

• After 30 years at a 5% annual return, you'd have $43,219.
• After 10 years at a 10% annual return, you'd have $174,494.

The stock market is volatile -- it's not a guaranteed 10% per year. It could be up to 30% one year and down by 15% the next. But over the long haul, it averages out to about 10% per year. As you can see, that makes a huge difference in how much you earn. With long-term savings, such as your retirement, investing is the clear choice.

You can invest through a traditional brokerage account or an individual retirement account (IRA). If you don't have an IRA yet, you probably should, as it can help you save on taxes. And right now, Robinhood is offering an IRA match to help boost your retirement savings. Find out more and open an account here.

Making the most of your savings

Even with interest rates dropping, don't feel pressured to put your money in a CD. While CDs work well for some, they aren't right for everyone because of their early withdrawal penalties.

I personally do exactly what I described above. Short-term savings and my emergency fund is in a high-yield savings account. Money I've earmarked for building long-term wealth is invested. It's a simple approach that works for most people.