Should You Open a 3-Month CD in 2024?

If you have money you don't need for emergencies but aren't looking to invest, you have a choice. You could put that cash into a regular savings account, or you could use it to open a CD.

CDs come in a variety of terms, and while not every bank offers a three-month option, some do. You may be inclined to open a three-month CD in 2024. But there's an upside to going this route as well as a downside.

The benefit of opening a three-month CD

When you open a CD, you commit to locking your money up in the bank for a preset period. Because of that, CD rates tend to be higher than savings account rates. Not only that, but CD rates are guaranteed for the duration of your CD, whereas the interest rate on a savings account can change based on market conditions.

So, let's say you put money into a savings account. After a month, you may find that you're earning less interest than when you started. If you open a three-month CD paying 4% interest, that's the rate you're going to get for that entire 90-day period.

Also, when you open a three-month CD, you're not tying your money up for a long time. There can be penalties to cashing out a CD before it comes due, and you'll usually lose out on a few months of interest for withdrawing your money early. With a three-month CD, this may be less likely to happen.

What's more, many people are feeling uncertain about the economy going into 2024 even though it's strong right now. Some financial experts are still cautioning that there's the potential for a near-term recession. If you're worried at all about losing your job in the new year, then you may want to limit yourself to a three-month CD so your money frees up fairly quickly and becomes available should you need it.

The downside of opening a three-month CD

Many banks don't even offer three-months CDs, but rather, have a minimum term of six months. But among those that do, you should know that you'll commonly get a more generous rate with a CD of a lengthier term.

As an example, EverBank offers a three-month CD that, as of this writing, has a 4.00% APY. But a nine-month CD comes with a 5.50% APY. That's a big difference.

Also, you might specifically want to lock in a longer-term CD in 2024. The reason? If inflation continues to cool, the Federal Reserve may opt to cut rates. If so, savings account and CD rates might follow suit. So locking in a longer-term CD could mean getting to enjoy a higher APY for longer.

All told, three-month CDs give you more flexibility with your money than longer-term CDs. And you may decide that it's worth forgoing a higher interest rate in exchange for that. Either way, spend a little time researching CD rates offered by different banks so you're able to get the best deal.