CD Accounts: Gen Z and Millennials Aren’t Using This Investment Tool — Is This a Mistake?

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Certificates of deposit have fallen out of favor with the younger generations. A recent GOBankingRates survey of 1,000 Americans found that just 6% of Gen Z, 9% of younger millennials and 10% of older millennials are putting funds into this investment vehicle.

With so many options on the market to park your cash, are CDs still a useful tool for these generations? Or are they better off putting their money elsewhere? GOBankingRates spoke with financial pros to get their expert insights.

How Certificates of Deposit Can Benefit Gen Z and Millennials

Depending on their circumstances and goals, putting money into a CD account may be a good choice for younger generations. Here’s a look at some of the benefits.

They’re a Stable Investment

“When investors of all ages are up against economic uncertainty like we are now, CDs can provide some much-needed stability,” said Shyam Pradheep, general manager of Zogo, a financial literacy platform. “This is especially true for younger investors who are looking to minimize their risk as they develop and navigate their investment strategies.

“CDs are considered one of the lowest-risk investment options out there, and they offer comparatively high returns,” he continued. “It’s a win-win if you’re able to meet the minimum deposit requirements and can invest your deposit for the CD’s entire term.”

You Know Exactly How Much You Will Get

Unlike with many other types of investments, you can know in advance how much you will earn when you put money into a CD.

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“One of the greatest benefits of CDs is that their returns are easy to calculate and rely on, so you can determine how much you’ll actually earn over time before you invest,” Pradheep said. “If those earnings match your investing goals and you won’t need to withdraw the funds until maturity, CDs can be a great option.”

CDs Are Ideal for Short-Term Financial Goals

“Conventional wisdom tells us that age is a deciding factor in how to grow your money — yet actually, the purpose of the money supersedes that advice,” said Kathleen Malone, senior financial advisor with Wells Fargo Advisors. “If the purpose is to grow investments for say, purchasing a home in two to three years, then you’d want to steer clear of the stock market and look into CDs.”

The Downsides of CDs

A CD account won’t be the best fit for every Gen Zer or millennial. One downside is that they often require a large deposit to open, which may create a barrier to entry for some members of these generations.

“The highest returns usually go to the investors who are able to deposit large sums of money for long periods of time,” Pradheep said. “This is a common barrier Gen Z and millennials face with any fixed-term investment. Especially during times of economic uncertainty, younger investors may not have the initial deposits needed to take advantage of the highest interest rates.”

Another downside is that you can’t easily access the funds if you end up needing them before the account matures.

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“If you put money into a three-year CD and use it before that timeframe, you would have to pay an early interest penalty fee when you cash out,” Malone said.

Finally, while CDs are a safe investment, there are other investment vehicles that could potentially offer higher returns, especially over the long term.

“If a Gen Zer or millennial aims to grow money for retirement, then investing in the stock market is going to be a good option for that purpose,” Malone said.

However, she advises against discounting CDs altogether.

“I imagine that so few Gen Zers and millennials keep money in a CD account [due to] a desire for higher returns from a brokerage money market account, for example,” Malone said. “The return could be higher, but the rates fluctuate and you don’t get the guaranteed rate as you would with a CD account. Those new to investing would be wise to think about how the market was down last year, and it’s not as easy as it looks [to earn high returns from the market] compared to the three previous years.”

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Methodology: GOBankingRates surveyed 1,000 Americans ages 18 and older from across the country between Dec. 7 and Dec.12, 2022, asking 19 different questions: (1) What category does your current financial institution fall under?; (2) Have you considered changing banks within the past year?; (3) If you have considered changing banks in the past year, were any of the following factors? (Select all that apply); (4) Which feature, perk or other offering is most important to you when opening an account with a new institution?; (5) Are you currently satisfied with all the banking products and services offered by your bank/credit union?; (6) Would you ever have different types of accounts across multiple banks? (i.e. checking at Chase, but savings at TD Bank); (7) What is your most preferred method of banking?; (8) Which of the following is the biggest factor for you staying with your current bank?; (9) Which of the following bank accounts do you currently use/have open? (Select all that apply); (10) How much is the minimum balance you keep in your checking account?; (11) How much do you currently have in your savings account?; (12) What amount of a sign-up bonus would make you consider switching banks?; (13) Have you considered using any app-only banking platforms (aka neobanks) in the past year (e.g. Current, Upgrade, Chime, Dave, etc.); (14) How important is it to you for your bank to be affiliated with a crypto exchange/platform?; (15) In the past year, how often have you written a physical check?; (16) When was the last time you visited your bank in person?; (17) Why would you choose to visit your bank in person? (Select all that apply); (18) When you think about banking, do you think of it as something you need or don’t need?; and (19) What services/products do you expect from your bank and/or credit union? (Select all that apply). GOBankingRates used PureSpectrum’s survey platform to conduct the poll.

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