Certificates of deposit (CDs) have offered really competitive returns in the post-pandemic era. It’s possible to find many CDs that offer interest rates above 5.00% – so you can make good money investing in them. This is especially true considering they are FDIC insured and the risk of loss is very low.
Although it can be really tempting to buy a CD with such great prices, there is one important piece of advice I would give anyone who are thinking about adding this asset to their portfolio.
Do not lock up any money that you might need during the term of your CD
If you are considering getting into CD investing, the most important thing I would tell you is to be absolutely 100% sure that you not You must erase your CD early.
CDs are not like savings accounts. You can’t just deposit money and withdraw it whenever you need it. You have to commit to a term when you buy a CD. Typically, banks offer CDs with terms ranging from three months to five years.
Our pick of the best high-yield savings accounts of 2024
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Capital One 360 Performance Savings 
APY 4.25%
Price info
For the most current rates, visit Capital One’s website. The advertised annual percentage rate (APY) is variable and is effective April 11, 2024. Rates are subject to change at any time before or after account opening.
Member of the FDIC. |
APY 4.25%
Price info
For the most current rates, visit Capital One’s website. The advertised annual percentage rate (APY) is variable and is effective April 11, 2024. Rates are subject to change at any time before or after account opening. |
Min. to earn $0 |
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American Express® High-Interest Savings 
APY 4.25%
Price info
4.25% annual percentage rate from August 26, 2024
Member of the FDIC. |
APY 4.25%
Price info
4.25% annual percentage rate from August 26, 2024 |
Min. to earn 1 dollar |
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UFB Portfolio Savings Account 
APY 5.15%
Price info
To ensure you continue to receive the highest interest rate with UFB, you need to keep an eye on their interest rates. Occasionally, the bank opens new accounts with higher interest rates. Existing accounts will need to contact the bank to request to be transferred to one of these new accounts.
Member of the FDIC. |
APY 5.15%
Price info
To ensure you continue to receive the highest interest rate with UFB, you need to keep an eye on their interest rates. Occasionally, the bank opens new accounts with higher interest rates. Existing accounts will need to contact the bank to request to be transferred to one of these new accounts. |
Min. to earn $0 |
If you withdraw money from your CD before it matures, you terminate it early — and there are consequences. Banks charge penalties for early withdrawals, but the minimum penalty is at least seven days of simple interest if you withdraw within the first six days of depositing your money. There is no maximum penalty, but it is often 90 to 180 days of simple interest.
If you withdraw your money fairly soon after investing, these penalties can actually be more than the interest you have earned. This means that, contrary to what many people think, it is actually possible to lose a portion of the money you have deposited into your CD.
Don’t take any risks if you might need your money
Of course, the goal of investing in a CD is to grow your money. After all, you’re investing it in an asset that’s supposed to produce a positive return on investment (ROI). But if there’s a chance you’ll have to withdraw your money early, you’re sabotaging your efforts to reach your goal.
Rather than risk a penalty that reduces your returns or even reduces your principal balance, you are far better off putting your money in a high-yield savings account, even if there is a chance you may have to close your CD early.
High-yield savings accounts typically offer similar interest rates to CDs. Currently, some savings accounts may even offer better returns. However, you don’t have to keep your money invested for a specific amount of time, so you retain flexibility that you simply don’t have with CDs.
Unfortunately, it’s difficult to predict the future. For example, if you’re buying a home and saving money for a down payment, you might be tempted to put the money in a CD if you don’t plan on buying in the next six months or a year.
However, if you happen to find the perfect home and mortgage rates are falling (as they have during the pandemic, when they repeatedly hit new record lows), you may want to act sooner—and you don’t want to let the threat of a CD penalty deter you from doing so.
Think very carefully about all the possible scenarios in which you might need the funds sooner than planned. If you do not have any emergency reserves yet And If you have a fallback plan to avoid early withdrawal, don’t buy a CD. Instead, put your money in a savings account, as the slightly higher ROI isn’t worth the risk of the losses that can result from penalties.
