3 Great Reasons to Open a CD Today
KEY POINTS
- CD yields are still near their highest level since before the 2008 financial crisis.
- Most experts predict interest rates will start to head lower later this year.
- You can open a CD with as little as $1 in many cases, so there's no reason to wait because you don't have enough money.
Certificate of deposit, or CD, accounts have become far more appealing to savers than they were just a few years ago. As I'll discuss in a bit, CDs have their highest interest rates in more than 15 years, but there's no guarantee it will stay that way. Plus, the requirements for opening a CD make it easier than ever to get started, even if you don't have a ton of money available.
1. Historically high yields
As of this writing, CD rates are hovering near their highest level since before the 2008 financial crisis, and the rise has been especially apparent among shorter-term CDs. According to data from the Organization for Economic Co-Operation Development, the average rate on a 3-month CD rose from an average of 0.11% in 2021 when the Fed's zero-interest policy was in full effect to 5.16% in 2023, and they remain near that level.
2. Interest rates are forecast to go down
By far, the most compelling reason for using a CD instead of a savings or money market account is that you get a guaranteed yield for a certain amount of time.
To be perfectly clear, as of this writing, it's entirely possible to get a higher yield from a savings account than a CD in many cases. But it's important to realize that this is the yield you're getting today.
Our Picks for the Best High-Yield Savings Accounts of 2024
Capital One 360 Performance Savings
![]() APY
4.25%
Rate info
See 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
Open Account for Capital One 360 Performance Savings
On Capital One's Secure Website. |
APY
4.25%
Rate info
See 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 info
4.25% annual percentage yield as of August 23, 2024
Min. to earn
$1
Open Account for American Express® High Yield Savings
On American Express's Secure Website. |
APY
4.25%
Rate info
4.25% annual percentage yield as of August 23, 2024
|
Min. to earn
$1
|
UFB Portfolio Savings Account
![]() APY
5.15%
Rate info
To ensure you keep getting the highest rate at UFB, you'll need to keep an eye on their rates. Occasionally, the bank launches new accounts with higher rates. Existing accounts need to contact the bank to request being moved to one of these new accounts.
Min. to earn
$0
Open Account for UFB Portfolio Savings Account
On UFB's Secure Website. |
APY
5.15%
Rate info
To ensure you keep getting the highest rate at UFB, you'll need to keep an eye on their rates. Occasionally, the bank launches new accounts with higher rates. Existing accounts need to contact the bank to request being moved to one of these new accounts.
|
Min. to earn
$0
|
For example, let's say that you have $10,000 that you'll need in about five years to help pay your child's college tuition. You're torn between putting that money in a 5-year CD with an APY of 4.25% or a high-yield savings account with an APY of 5.00%.
The problem is that 5.00% APY from savings isn't guaranteed. If the economy takes a downward turn and the Federal Reserve starts to aggressively cut rates, that yield could fall sharply. But the rate you lock in on a CD now is guaranteed for the duration of its term, be that three months, or five years
We certainly have no idea if rates will plunge anytime soon, or when it could happen. But virtually all experts believe the general direction of interest rates over the next few years will be downward, so opening a CD now while rates are up can let you lock in a high yield.
3. You can (literally) get started with a dollar
Of course, $1 compounded at a 4%-5% annualized rate isn't likely to get your blood pumping, but the point is that with the emergence of online banking, CDs have become far more accessible than they once were. It wasn't too long ago when banks often required $500, $1,000, or even more just to open a CD.
That has changed. There are now some excellent financial institutions that offer CDs with no minimum deposit whatsoever, and in many cases, you can have dozens (or more) CDs open at the same time with the same bank.
So, if your goal is to save a certain amount of money in a CD (say $1,000), you don't necessarily need to wait until you've saved it. Let's say that you have $200 available today. You can open a high-yield CD with it, and simply open additional CDs as you have more money available. If you don't think you have enough money to earn a reasonable amount of interest in a CD, it doesn't necessarily need to stop you from opening an account today.
Should you open a CD today?
CDs aren't the best fit for everyone, and there's no way to say with 100% certainty that right now is an ideal time to open a CD. After all, it's entirely possible that inflation could spike again, and CD yields could rise to 6% or even 7% as a result. It's not the most likely scenario, but it could happen.
However, if any or all of the three reasons I've outlined above seem as if they fit your current financial situation, it could be an excellent idea to open a CD right now.
Our Research Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
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