Are CDs still a good investment for December 2024?

Certificates of deposit (CDs) can be a wise choice for savers who want to park cash in a short-term investment with interest rate security and low risk. Unlike most bank accounts, CD rates are fixed, meaning you’ll earn interest at the same rate as long as your CD is open. It can be a useful tool to reduce inflation, but is it the best for your money right now?

Let’s see if today’s best CDs are right for you.

Purchase a CD to lock in today’s best interest rates

CDs were much more popular last year due to unusually high interest rates on some CD products. While rates aren’t nearly as high as they are in 2023, you can still find some lucrative deals on short-term CDs.

For example, Prime Alliance Bank currently offers a 6-month CD with an APY of 4.65% and a minimum opening deposit of $500. That’s an excellent rate for a CD of this term. If you’re looking for something longer, Discover® Bank offers a 1-year CD with a 4.10% APY and a minimum opening deposit of $0 (Use this link to take advantage of this offer).

Our picks for the best high-yield savings accounts of 2024

American Express® High Yield Savings Member FDIC. API 3.90% Rate information Annual return of 3.90% from December 8, 2024. Terms and conditions apply. Member FDIC.	3.90% Rate information Annual return of 3.90% from December 8, 2024. Terms and conditions apply.	$0
Capital One 360 Performance Savings Member FDIC. API 3.80% Rate information See the Capital One website for the most current rates. Advertised Annual Yield (APY) is variable and accurate as of December 6, 2024. Rates are subject to change at any time before or after account opening. Member FDIC.	3.80% Rate information See the Capital One website for the most current rates. Advertised Annual Yield (APY) is variable and accurate as of December 6, 2024. Rates are subject to change at any time before or after account opening.	$0
Premier of Western Alliance Bank with high-yield savings products Member FDIC. API 4.46% Rate information The Annual Yield Rate (APY) is accurate as of November 7, 2024 and is subject to change at the Bank’s discretion. Please refer to the product’s website for the most current APY rate. The minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. earn $500 to open, $0.01 for maximum APY Member FDIC.	4.46% Rate information The Annual Yield Rate (APY) is accurate as of November 7, 2024 and is subject to change at the Bank’s discretion. Please refer to the product’s website for the most current APY rate. The minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	$500 to open, $0.01 for maximum APY

Another advantage of CDs is their fixed interest rates. Once you open a CD account and commit your money, your interest rate will remain the same no matter what happens next with CD rates in the market. With interest rates falling across the board, you could end up earning interest at a rate much higher than the best current APYs.

Why you might want to avoid CDs right now

Regardless of interest rates, CDs have some disadvantages that are true at any time. One does early withdrawal penalties. Most CD products penalize you if you try to withdraw money before your term is up. The severity of the penalty depends on the length of your CD term, with longer terms generally subject to higher penalties. For example, a two-year CD may carry a penalty equal to twelve months of interest, whether earned or not.

If you’re unsure about CDs, you can open a high-yield savings account. The best high-yield savings accounts have rates comparable to CDs. They don’t charge a penalty for withdrawing cash, and you can continue to deposit money into your account over time, a feature most CDs don’t offer.

CD interest is also taxed at the federal and state levels. This makes CDs slightly less beneficial than other short-term investments such as Treasury bills (T-bills), which are not subject to state taxes. One solution is to open a CD within a tax-advantaged retirement account, such as an IRA or 401(k). Most retirement accounts offer great tax benefits that can ease the burden on your tax bill.

Ultimately, a CD is right for you if its benefits align with your financial goals. If you don’t want to invest some of your savings but are going to spend it in the short term, a CD may be the best way to earn interest. Take a look at the best CDs on the market today to see how much you can make with your savings.