Can You Still Make Money Investing in CDs?

In September, the Federal Reserve lowered the benchmark interest rate by 0.5%, with more cuts likely to follow. This is good news for borrowers, who will pay less to borrow money. But for savers, it signals the end of the high interest rates we’ve enjoyed. So, can you still make money off certificates of deposit (CDs)?

The short answer is yes, you can still make money with CDs. But whether you should depends on your overall financial goals.

Yes, you can still make money in CDs

CDs remain a safe place to store money, especially for short- to medium-term goals. One of the biggest perks of CDs is they’re FDIC-insured, meaning your deposits are protected up to $250,000 per bank, per depositor, per ownership category, even if the bank fails.

The downside? Your money is locked in for a set term, and withdrawing early usually results in penalties.

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Unlike stocks, CDs provide a fixed rate of interest, so you’ll know exactly how much you’ll earn. Currently, top CDs still offer an interest rate of around 4%. Let’s look at what you can make in a CD, assuming a CD rate of 3.8% and a $10,000 investment.

Data source: Author’s calculations

CDs can be especially useful if you’re saving for a specific goal with a clear timeline, like buying a house in a few years. You can protect your money and earn some interest without exposing your savings to market fluctuations. CDs also may appeal to retirees who value stability and guaranteed returns.

However, if you’re too heavily invested in CDs, you could be missing out on opportunities for higher growth elsewhere.

CDs aren’t always the best choice

With CD rates likely to drop further, you may feel tempted to lock in today’s rates. But don’t let the fear of missing out cloud your judgment—there are situations where CDs aren’t the best option.

For instance, you shouldn’t tie up your emergency savings in a CD. Emergency funds need to be easily accessible, and locking your money in a CD could limit your access when you need it most. A high-yield savings account (HYSA) is usually a better choice for your emergency savings.

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Here’s how that same CD rate compares with putting that money in the highest-interest-rate HYSA I could find:

Data source: Author’s calculations

You could miss out on nearly $800 in growth over five years. (Which, of course, assumes that rates stay the same, and they might not!)

CDs also aren’t ideal for long-term retirement savings. If your retirement is more than a few years away, investing in the stock market is generally a better bet. Stocks tend to offer higher returns over time — around 10% annually on average. While there’s more risk involved, the potential for growth over the long term may outweigh the stability of CDs.

You don’t need to be a financial expert to start investing either. Low-cost mutual funds or investment apps can simplify the process and help you build a diversified portfolio.

Want to make investing easier? Check out the top investment apps.

Should you buy a CD today?

Don’t let the recent 0.5% Fed rate cut drive your CD decisions. While it’s true that CD rates will decline, they won’t drop overnight, and your personal financial goals should guide your choices. CDs are still a good option for some savers, but it’s essential to think about what you need your money for, when you’ll need it, and how much risk you’re comfortable taking.

In short, CDs are still a viable investment option. But with rates on the decline, you’ll want to weigh your options carefully.