Certificates of deposit (CDs) might seem like a good place to keep your money, especially with interest rates on the decline. But the truth is that in most cases, your cash is better off elsewhere.
If you’re looking for flexibility and long-term growth — or if you’re carrying high-interest debt — there are much better uses for your money. Here’s what to know.
1. High-yield savings accounts are more flexible, with similar returns
Right now, our favorite high-yield savings accounts (HYSAs) are paying APYs that rival top CDs — and you don’t need to lock up your money to earn them.
Just like traditional savings accounts, HYSAs let you access your money anytime, and they’re FDIC-insured up to $250,000. The best banks also don’t charge monthly fees or have account minimums.
Add it all up, and it’s pretty clear: HYSAs are the perfect place to store your emergency fund and short-term savings.
Want to earn a high APY while keeping access to your cash? See our full list of the best high-yield savings accounts available now.
2. Stocks offer more long-term growth
For money you plan on investing for the long haul, a CD isn’t the best option, either.
Consider this: Over the last 30 years, the average return of the U.S. stock market was 9% per year, as measured by the S&P 500 Index — more than double the rate of the best CDs.
CDs might sound appealing because they have a guaranteed return — but still, that return is limited. Over the course of years and decades, something like an S&P 500 index fund will almost definitely earn more.
Ready to get started? See our list of the best online brokerages today.
3. Paying off debt is a better use of your cash
Finally, if you have high-interest credit card debt, even the best CDs can’t help you put a dent in it.
That’s because the average credit card APR is around 21%, according to the Federal Reserve. Saving with a CD while carrying high-interest debt is always a losing bet.
Make sure to pay off any and all debt before you think about a CD. If you owe credit card debt with a 21% APR, you could think of it as getting a guaranteed 21% return for paying it off.
Once your high-interest debt is gone and your emergency fund is in place, then you can start looking into CDs or other savings tools.
Want an easier way to pay off debt? Check out our picks for the best balance transfer cards available now.
CDs can be smart — sometimes
CDs can still be a solid way to save in the medium term. But only if you:
- Have no high-interest debt
- Have three to six months of expenses in a savings account
- Are already investing in stocks long-term
Does that sound like you? Compare the best CD rates now to start saving today.