There's a reason so many people have been clamoring to open CDs. The interest rate hikes the Federal Reserve implemented in 2022 and 2023 have led to higher CD rates. So you may be tempted to lock in a guaranteed rate on your money -- especially when you can still get an APY of 5.00% pretty easily.
But while it's easy to see the appeal of CDs today, there may be a better choice for your money. Here are three alternatives to a CD you should consider.
1. A high-yield savings account
The nice thing about opening a CD is that your interest rate is guaranteed. With a savings account, your interest rate could change -- for better or for worse -- based on market conditions.
However, the benefit of a savings account is that you're not being forced to make a commitment. If you end up needing or wanting your money for another purpose, you can take a withdrawal at any time. With a CD, you risk a penalty for withdrawing your money early.
Our Picks for the Best High-Yield Savings Accounts of 2024
Capital One 360 Performance Savings 
APY 4.25% Rate infoSee Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY)is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. Open Account for Capital One 360 Performance Savings Member FDIC. | APY 4.25% Rate infoSee Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY)is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. | Min. to earn $0 |
American Express® High Yield Savings
APY 4.25% Rate info4.25% annual percentage yield as of June 26, 2024 Open Account for American Express® High Yield Savings Member FDIC. | APY 4.25% Rate info4.25% annual percentage yield as of June 26, 2024 | Min. to earn $1 |
Citizens Access® Savings
Open Account for Citizens Access® Savings Member FDIC. | | Min. to earn $0.01 |
Even if you open a savings account paying a slightly lower APY than what top CDs are offering now, you could still come out ahead.
For example, for a $10,000 deposit, earning 4.00% on your money in a savings account over the next year vs. 5.00% from a CD is a difference of $100. But if you have to cash out a 12-month, $10,000 CD early that pays 5.00% before the term ends, you might lose three months of interest, which is a loss of $125.
Even more reason to go with a savings account: Some of the accounts on our best high-yield savings account list currently earn higher than 5.00% APY.
2. A brokerage account
The idea of earning 5% on your money might seem fantastic. But what if you could earn 10% instead?
When you invest in a brokerage account, there's no such thing as a guaranteed return. But you should know that over the past 50 years, the stock market's average annual return has been 10%.
If you put $10,000 into a stock portfolio that delivers that same return, in 10 years, you could end up with roughly $26,000. Even if you're able to get a 5% return out of a $10,000 CD for the next 10 years, that only leaves you with about $16,300. That's close to a $10,000 difference.
3. An IRA
Like a brokerage account, an IRA lets you invest your money in stocks and other assets. Because of this, you might score a much higher return on your money there than with a CD.
But also, if you put money into a traditional IRA, your contribution goes in tax free up to the annual limits. This year, those are $7,000 for savers under age 50 and $8,000 for those 50 and over. So if you're in the 22% tax bracket based on your income and you put $5,000 into an IRA, you get to pay the IRS $1,100 less.
Now you should know that IRAs give you those tax breaks so you'll keep your money in place for retirement. You'll generally face a 10% penalty for withdrawing from an IRA before age 59 1/2. If you're not sure that restriction works for you, a brokerage account could be a better option.
Today's CD rates may be outstanding. But don't assume a CD is the best place for your money. These three options may be a much more lucrative be
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FAQs
The highest certificates of deposit (CDs) rates today are offered by Nano Bank (6.00%), Merchants Bank of Indiana (5.92%), Shoreham Bank (5.50%) and HAB Bank (5.48%).
Where can I earn 5% on a CD? ›
Highest current CD rates (overall)
| Institution name | APY | Term length |
|---|
| MYSB Direct | 5.10% | 18 months |
| Morgan Stanley | 5.00% | 18 months |
| Bask Bank | 5.00% | 18 months |
| LendingClub Bank | 5.00% | 18 months |
31 more rowsThe highest certificates of deposit (CDs) rates today are offered by Nano Bank (6.00%), Merchants Bank of Indiana (5.92%), Shoreham Bank (5.50%) and HAB Bank (5.48%).
Why would you choose the savings account over the CD? ›
Deciding between CD or savings account
When to consider a savings account: You need the money to be accessible, like an emergency fund. You're saving for a smaller or relatively short-term goal. You're primarily putting money aside instead of trying to grow it.
What is a CD account and how would you choose between a CD vs a money market account? ›
A money market account and a CD can help you set money aside for future goals, such as building an emergency fund or saving for a down payment. Both accounts earn interest. But CDs limit access to your money during the term and money market accounts don't. A CD is a type of timed deposit account.
Where can I get 7% interest on my money? ›
Why Trust Us? As of June 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.
Can you get 6% on a CD? ›
It's possible for some people to get 6% on a CD right now, but only if you are eligible to join a smaller credit union since no nationally available financial institutions are currently offering them. CDs with 6.00% APY are getting harder to find.
Can you get 7% on a CD? ›
Can You Get a 7% CD Account? There was a lot of excitement in August 2023 about a few credit unions offering 7% APYs on certificates. But those rates were offered for a limited time only and are no longer available. However, the nation's best CD rates are still well above 5%, with some pushing toward 6%.
Should I lock in a CD now or wait? ›
Unlike traditional or high-yield savings accounts, which have variable APYs, most CDs lock your money into a fixed interest rate the day you open the account. That's why if you suspect that interest rates will soon drop, it can be a good idea to put money in a CD to preserve the high APY you would earn.
How high will CD rates go in 2024? ›
Key takeaways. The national average rate for one-year CD rates will be at 1.15 percent APY by the end of 2024, McBride forecasts, while predicting top-yielding one-year CDs to pay a significantly higher rate of 4.25 percent APY at that time.
Yes, Marcus by Goldman Sachs is secure and safe to bank with. For one, accounts with Marcus are insured by the Federal Deposit Insurance Corp.
What is the biggest negative of putting your money in a CD? ›
Banks and credit unions often charge an early withdrawal penalty for taking funds from a CD ahead of its maturity date. This penalty can be a flat fee or a percentage of the interest earned. In some cases, it could even be all the interest earned, negating your efforts to use a CD for savings.
Why shouldn't you invest all of your savings in a CD? ›
One major drawback of a CD is that account holders can't easily access their money if an unanticipated need arises. They typically have to pay a penalty for early withdrawals, which can eat up interest and can even result in the loss of principal. “During times of uncertainty, liquidity is often paramount.
What are better than CD accounts? ›
High-yield savings accounts, money market accounts and bonds can be good alternatives to CDs. Returns vary, but they're all considered low-risk investments. Regardless of where you keep your money, tending to your credit health is always a top priority.
Are mutual funds better than CDs? ›
The Bottom Line. CDs are low-risk, low-return investments that are best suited for people looking to save money over the short term or those who want to avoid any risk. Mutual funds offer higher potential returns, along with higher risks. They're suitable for long-term investors who can ride out price fluctuations.
Is it better to have multiple CD accounts? ›
If your goals have different timelines, multiple CDs with different maturity terms could help you create an effective savings strategy. This allows flexibility in saving money for short- and long-term goals.
Is anyone paying 5% on CDs? ›
Plenty of banks and credit unions are offering CDs paying 5.00% APY or more. To earn an account's advertised APY, you'll often have to meet any account minimums. Some CDs have no minimum opening deposit requirement, but it's not uncommon to see CD minimums of $500 to $2,500 or more.
How much can I make on a 5% CD? ›
That all noted, here's how much you can expect to make with a 5% CD interest rate: $500 deposit: $25 for a total of $525 after 12 months. $1,000 deposit: $50 for a total of $1,050 after 12 months. $2,500 deposit: $125 for a total of $2,625 after 12 months.
Where can I get 5% interest? ›
Best 5% interest savings accounts
| Savings Account | APY |
|---|
| Primis Savings Account | 5.07% APY |
| EverBank Performance℠ Savings | 5.05% APY |
| Salem Five Direct eOne Savings | 5.01% APY |
| CIT Bank Platinum Savings | 5.00% APY on balances of $5,000 or more; 0.25% APY on balances under $5,000 |
19 more rows3 days ago
Best 5-Year CD Rates
- Farmers Insurance Federal Credit Union – 4.50% APY.
- Department of Commerce Federal Credit Union – 4.45% APY.
- The Federal Savings Bank – 4.45% APY.
- Crescent Bank – 4.40% APY.
- Colorado Federal Savings Bank – 4.35% APY.
- Lafayette Federal Credit Union – 4.32% APY.
- MYSB Direct – 4.31% APY.
