Ranked: Best Reasons to Open a CD Instead of a Savings Account in 2024

Certificates of deposit (CDs) are paying some surprisingly high APYs in 2024. In fact, the best CDs on our curated list currently offer up to 5.55% APY! Despite these high yields, CDs aren't the right fit for everyone. They require you to lock up your money for a specific "term" of time, and they charge early withdrawal penalties if you need your cash too soon.

But depending on your financial goals, the best CDs could be better than a savings account.

Let's look at a few reasons why you might want to open a CD instead of a high-yield savings account.

1. You're not afraid of commitment

CDs typically require you to commit your money for a certain period of time, called a "term." This term could be as short as three months or as long as five years; it all depends on which are offered by the bank and which one you want to invest in. If you're saving for a specific goal with a certain deadline, like "I want to buy a home in 12 months" or "we want to save for our wedding in nine months," CDs could give you a better APY than a savings account.

But the downside is: you have to lock up your money. If you sign up to invest $1,000 in a 12-month term CD, you're not supposed to get your $1,000 back until the term is up. What if you need your cash sooner than that? If you take that $1,000 of principal out of the CD before the 12 months is over, you'll have to pay an early withdrawal penalty that could wipe out most of the interest you've earned.

So before you commit to a CD, make sure you're willing to leave that money alone until the term is up. (The only exception to this rule is a no-penalty CD, which some banks and credit unions offer -- but these special CDs tend to have lower APYs than standard penalty-charging CDs.)

Why locking up your money in a CD could be a good thing: It keeps your savings safe. If you need an extra nudge or set of guardrails to keep you from blowing through your savings, committing that money to a CD could help you. Knowing that you'd have to pay an early withdrawal penalty can help strengthen your motivation to leave your CD alone and let it grow. Sometimes commitment is helpful, even when it's hard!

2. You can lock in a higher APY for a longer time

It is widely expected by various Wall Street analysts and economists that the Fed is going to cut interest rates in 2024. No one knows exactly when it will happen, but there's a chance that today's 5.00% (and higher) APYs on CDs are as high as they will get for a long time. If you believe that interest rates are about to go down, locking in a higher APY today can be a smart move.

One of the best reasons to open a CD is that it helps you lock in a guaranteed rate of interest on your savings. Even the best high-yield savings accounts don't offer a guaranteed rate. Savings account APYs can change rapidly (up or down) along with the Fed's latest moves on interest rates.

Why locking in a higher APY can be a good idea: Let's say that the Fed cuts interest rates moderately by the end of 2024. The same CD that pays 5.00% APY today might only offer 4.00% APY by the end of the year. Locking in a higher APY today could help you boost your savings and stay ahead of possible rate cuts.

3. You just want a higher APY than savings accounts offer

The best CDs tend to offer slightly higher APYs than the best high-yield savings accounts. For example, currently, the highest CD rate identified by The Ascent's research was 5.55% APY, while the highest-yielding savings account paid 5.32% APY. That means the best CD would pay you an extra 0.23% APY for locking up your money. Is that worth it to you?

I'm on the record as saying that I'm not opening any CDs in 2024, even though the APYs are higher than savings accounts. But that's because I value the flexibility of a savings account so highly. I want freedom to move my money more than I want that extra 0.23% of APY. It's worth it to me to preserve my options for how to use my cash, without worrying about early withdrawal penalties.

But I'm not everyone. If you're trying to save for a specific goal, like a new car or a down payment on a house, you might want the highest possible yield to help your cash savings grow. If you're confident that you can leave your CD money in the bank long enough to avoid early withdrawal penalties, then go for it! Opening a CD instead of a savings account could be the best decision for your personal finances.

Bottom line

CDs aren't the best choice for everyone, because they require you to commit your money for a certain length of time. They charge early withdrawal penalties. And the APYs aren't always much higher than the best savings accounts. But if you have specific savings goals, if you want the highest APY you can get, and if you want to lock in a guaranteed rate of interest to stay ahead of possible rate cuts, one of the best CDs could be better than a savings account.