The beauty of CDs is that they allow you to lock in a guaranteed interest rate for a set period of time. And with CD rates currently high, it’s a great time to open a CD.
I’m considering a 12-month or longer CD this month based on current interest rates. But there’s one big reason I wouldn’t even consider a 3-month CD at a time like this.
There is not much upside potential for 3-month CDs
The benefit of a CD is that you lock in a good interest rate on your money and know that you can enjoy that rate for the life of your CD. But for me, locking in a good interest rate for just three months isn’t worth it.
First, finding a 3-month CD is difficult. Most banks’ terms start at six months, but 3-month CDs aren’t that common. And when you do find one, you’ll probably find that the interest rate you’re looking at is pretty similar to what you’d pay on a regular high-yield savings account.
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 25, 2024
Member of the FDIC. |
APY 4.25%
Price info
4.25% annual percentage rate from August 25, 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 |
Now it is true that with a 3-month CD your interest rate is guaranteed for 90 days, whereas with a savings account this is not the case. However, since interest rates are not expected to fall, dramatic over the next three months, I don’t see any benefit to opening a 3-month CD. A savings account might earn you less interest over three months — but probably only a little less, to the point where it doesn’t matter to your finances either way.
And speaking of falling interest rates, that could happen soon. The Federal Reserve is expected to cut its key interest rate long before the end of the year. And the central bank’s first rate cut could well come as early as September, during its mid-month meeting.
For this reason, I am much more inclined to take out a CD with a term of 12 months or more. That way, I can continue to earn a higher interest rate for a while while banks begin to lower their rates on a continuous basis (a likely scenario, since the Fed will not cut rates once, but will do so continuously for a while).
And let’s not forget that 12-month CDs generally offer a higher interest rate than 3-month CDs, so if I open a CD now, it will be for a longer period overall. Depending on my savings horizon, I may even opt for a term longer than 12 months.
Think carefully before opening a 3-month CD
A 3-month CD may seem like a low-effort solution for you, but consider whether it’s worth it before opening one.
It’s true that rates are unlikely to fall between now and the end of the year. If anything, they’ll probably fall slowly and gradually. But if you open a 3-month CD now and rates fall a month or two later, it may be too late to get an exceptional rate on a longer-term CD like you can today when your money becomes free.
However, a 3-month CD only makes sense if it is part of a CD ladder. The ladder strategy makes sense if you have a lot of money invested in CDs and want to make sure you can access your money regularly. However, if you only want to open a single CD, a 3-month CD may not be as beneficial.
