Are CDs Worth It?

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CD rates are a great investment vehicle for money you don’t need to touch for a few months. Sometimes, you can get a better rate from a CD than you can from a savings account.

However, CD rates are tied to federal rates, so they may feel more worth it some months than others.

CD Rates in 2025

Recently, the Federal Reserve has been lowering interest rates. As a result, the average CD rate has dropped in the past few months.

For example, on October 21, 2024, the average three month CD was 1.54. But by May 19, 2025, the average was 1.41. However, some banks offer rates that are much higher than the average and haven’t lowered them.

Benefits of Investing in CDs

Here are some of the benefits of investing in CDs. 

CDs Are Considered a Safe Investment

Unlike stocks or bonds, CDs are insured up to $250,000 by the Federal Deposit Insurance Corp. So, if the bank holding your deposit fails, your money is protected. 

CDs Typically Offer Higher Interest Rates Than a Savings Account

But it’s important to shop around. For example, some of the best CD rates exceed 4.00% APY. When compared to other low-risk investment options, that’s a great return.

CDs Offer Fixed Returns 

When you put your money in a CD, you lock in the interest rate for the term of the CD. In other words, you’re guaranteed a certain return once your CD’s term ends.

Potential Drawbacks Associated With CDs

Here are some potential disadvantages of investing in CDs.

CDs Limit Your Access to Funds

The biggest downside to CDs is that they are designed to lock down your money until the term ends. If you need to take your funds out earlier, you’ll have to pay a penalty, which will eat into any interest the CD may have earned.

For example, at Ally Bank, the early withdrawal penalty on CDs with terms of 24 months or less is 60 days of interest. Check with your bank to find out its early withdrawal penalties for CDs. 

An exception to this would be if you invested in a no-penalty CD, but the annual percentage yields usually aren’t as competitive as what standard CDs offer.

CDs Feature a Locked Interest Rate

While a fixed return can be viewed as an advantage — especially if current interest rates go down — there’s also another consideration. If interest rates go up during your CD’s term, you’ll miss out on earning more.

CDs vs. Other Investments

To help you decide whether opening a CD would be worth it to you, here are some alternative investment options to consider.  

High-Yield Savings Accounts

One of the highest high-yield savings rates is 4.30% APY. Even though high-yield savings accounts may offer less interest than some CDs, they are much less restrictive when it comes to accessing your money.

Money Market Accounts

One of the highest money market account rates right now is 4.31% APY, which is higher than what you can currently earn with the highest-earning CDs. Although money market accounts allow you more access to your money than a CD does, it will typically require you to keep a minimum balance. If you can’t maintain the minimum, usually at least $2,500, you may have to pay a monthly maintenance fee.

Money market accounts usually come with checks or a debit card, giving you easier access to your money.

Treasury Bills and Bonds

Treasury bills and savings bonds are another way to earn interest on your money. Like CDs, you won’t have access to the money you invest until the bill or bond reaches maturity. However, the interest rates for these types of investments are often much lower.

Strategies for Maximizing CD Returns

Here are some strategies to consider to maximize certificate of deposit returns. 

CD Laddering

One way to take advantage of the safety and different interest rates offered by CDs is to create a CD ladder. This involves dividing your investment across several CDs with different maturity dates, such as one year, two years, three years, four years and five years.

As each shorter-term CD matures, you can either use the money or reinvest it in a new five-year CD, preferably at a higher interest rate. This strategy not only helps maximize your returns but also provides you access to your funds at regular intervals as each CD reaches maturity. 

Shop Around for the Best Rates

It’s important to compare CD terms and rates from different banks and credit unions to find the best rate. Even a small difference in the interest rate can make a difference in your earnings over time.

For example, if you invest $10,000 in a 12-month CD that pays 4.50% APY with monthly compounding interest, you’ll earn $450.02 by the end of the term. However, if you invest $10,000 in a CD with the same term and a rate of 5.00% APY, you’ll earn $500.01 — about $50 more.   

Economic Factors Influencing CD Rates

Here are a couple of ways the economy influences CD rates.

Federal Reserve Actions

CD rates are heavily influenced by the Federal Reserve’s interest rate decisions. When the Fed raises rates, banks typically increase the rates offered on CDs.

Conversely, when the Fed cuts rates, banks often decrease CD rates. Keeping an eye on these trends can help you time your CD investments to maximize returns.

Inflation

Inflation can erode the interest earned on CDs and cause you to lose money. For example, in 2022, inflation was 6.42%, and the yield on a 12-month CD was only 2.35%, which means that the real return on the CD after inflation and taxes for a married couple filing jointly with $100,000 of taxable income at a 22% tax rate was -4.59%, according to data analyzed by Hartford Funds.

During periods of high inflation, even high-interest CDs might not keep pace with the increase in prices, making real returns less attractive.

When CDs Make Sense (and When They Don’t)

CDs are best in scenarios where you won’t need to use the money for the entire term. That makes them a great savings vehicle for:

• Saving for retirement
• Savings goals like vacation, down payment on a home or another extra expense

However, CDs are not great for sudden and unexpected expenses that are best suited for an emergency fund. You should set aside money for unexpected medical or car bills in an account that you can access at once and without penalty.

The Bottom Line

If you have money you don’t need access to for a few months and you find a bank that offers a high CD rate, it might be worth it for you. Especially if you can’t find a high yield savings account or money market account that matches it.

Just make sure you decide quickly, as the bank might not offer the same rate in the next week.

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