Most People Will Tell You a 6-Month CD Isn’t Worth It. I Disagree

A lot of people are rushing to open CDs these days while rates are high. And that makes a lot of sense. When interest rates are lower, there’s less upside to putting money into a CD. You’re making a commitment to keep your money in the bank without a lot of benefit.

But with many CDs paying 5% today, it pays to take advantage of these fantastic rates while they’re still available. And for the most part, you’ll get the best CD rates for a 12-month term.

With a 6-month CD, on the other hand, you may not earn that much more interest than what a savings account will pay you. In some cases, you may even be looking at the same amount of interest. Because of this, I’ve heard many people say that 6-month CDs aren’t worth opening. But I disagree for two key reasons.

1. A guaranteed interest rate could help you meet your goals

It’s true that the interest rate on a 6-month CD may be comparable to what a high-yield savings account will pay you. Only with the savings account, you don’t have to commit to keeping your money in the bank or risk an early withdrawal penalty. But if you’re working toward a specific goal, then the guaranteed interest rate that comes with a 6-month CD is reason enough to open one.

Our Picks for the Best High-Yield Savings Accounts of 2024

American Express® High Yield Savings APY 4.25% Rate info Circle with letter I in it. 4.25% annual percentage yield as of July 29, 2024 Member FDIC.	APY 4.25% Rate info Circle with letter I in it. 4.25% annual percentage yield as of July 29, 2024	Min. to earn $1
UFB Portfolio Savings Account APY 5.15% Rate info Circle with letter I in it. 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. Member FDIC.	APY 5.15% Rate info Circle with letter I in it. 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
Western Alliance Bank High-Yield Savings Premier APY 5.31% Rate info Circle with letter I in it. 5.31% annual percentage yield (APY) is accurate as of 7/11/2024 and subject to change at the Bank’s discretion. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. to earn $500 to open, $0.01 for max APY Member FDIC.	APY 5.31% Rate info Circle with letter I in it. 5.31% annual percentage yield (APY) is accurate as of 7/11/2024 and subject to change at the Bank’s discretion. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	Min. to earn $500 to open, $0.01 for max APY

Let’s say both your savings account and a 6-month CD have a 4.5% APY and you have $6,000 to deposit. This means that after six months, you should be looking at $135 in interest with the CD. That may be the cost of the new kitchen gadget you really want.

With a savings account, you might earn that $135 in interest after six months if your rate stays the same. But it may not — especially given that the Federal Reserve has indicated that it’s looking to cut interest rates before the end of the year. So if you’re hoping to earn a certain amount of interest, opening a 6-month CD makes sense.

2. A 6-month CD might fit nicely into a ladder you’re building

When you open any CD, you run the risk of needing your money sooner than expected and facing a penalty for an early withdrawal. That’s why it’s typically a good idea to set up a CD ladder rather than put all of your money into a single CD. And a 6-month CD could fit in perfectly.

Say you have $6,000 to deposit. Rather than open a single 12-month CD, what you may want to do is split that $6,000 into four equal deposits. Then, you could open a 3-month CD with $1,500, a 6-month CD with $1,500, a 9-month CD with $1,500 and a 12-month CD with your final $1,500.

This allows a portion of your money to free up every three months so if you have a surprise expense, you’re less likely to end up in a situation where you’re penalized for accessing your cash.

All told, I see plenty of value in opening a 6-month CD today. So if you have some money to spare, I’d recommend getting moving sooner rather than later — before CD rates start to fall and 6-month CDs start paying a bit less.

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