Top 7 Things I'd Rather Do With My Cash Than Open a CD

I recently wrote that 2024 is "the year of the CD." Many Americans are curious about opening a CD in 2024, because of possible Fed interest rate cuts later this year. If the Fed cuts interest rates, right now (April 2024) could be a good time to open a CD and lock in a high APY.

But how good of a deal are CDs, really? It's true that the best CD rates (as of April 6, 2024) are over 5.00% APY. And CDs give you a fixed rate for the length of the term, while savings account and money market rates will go down if interest rates go down. But CDs have a few significant drawbacks: you have to lock up your money for a set length of time, and if your plans change and you want to take out your cash, you have to pay early withdrawal penalties.

CDs are not your only choice to earn yield on your cash. Here are seven accounts where I'd rather put my extra cash in 2024.

1. High-yield savings account

Your emergency savings should be in a high-yield savings account. The best savings accounts are paying APYs that are competitive with (or sometimes higher than) the best CD rates. And with a savings account, your money is liquid -- you can get your cash anytime, with no penalties. (There are some limits on the number of withdrawals you can make per month from a savings account, thanks to old rules under Regulation D.)

Is it worth locking up your money in a CD to earn (for example) 0.10%-0.20% higher yield on your savings? If you have $100,000 to put into a jumbo CD, then maybe. But the typical American has $1,200 of savings, so most people would say "no."

And with a savings account, you don't have to commit your money for a specific "term" of time -- you can put more money into your savings account or take money out whenever you need to. The best savings accounts give you high APYs and easy access to your money.

2. Money market account

Another alternative to CDs is a money market account. This is similar to a savings account, but your cash gets invested in short-term bonds and cash equivalents (aka, "the money market"). Because of how the cash gets invested, money market accounts often pay higher APYs than typical bank savings accounts.

As of April 6, 2024, the best money market accounts are paying 5.00% APYs or higher, similar to the best high-yield savings accounts. Another useful perk of money market accounts is that they sometimes offer a debit card or check-writing capabilities.

3. Traditional IRA

Do you already have a fully-stocked emergency savings fund, with three to six months of expenses in FDIC-insured cash? If so, you could put extra cash (up to $7,000 for 2024, or $8,000 for people ages 50 and over) into a traditional IRA to save for retirement. If you qualify based on your income and whether you have a job-based retirement plan, you can also get a tax deduction for your traditional IRA contributions.

4. Roth IRA

Want to save extra money for retirement, in a way that gives you tax-free income after you retire? Put extra cash into a Roth IRA. Your income has to be below a certain limit to be allowed to use a Roth IRA, and you won't get a tax break for your Roth IRA deductions. But for the 2024 tax year, you can put a total of $7,000 ($8,000 for the age 50-plus cohort) into your traditional and Roth IRAs.

5. Taxable brokerage cash account

Extra cash that can't be put into a tax-advantaged retirement account could go into a taxable brokerage account. Some of the best online brokerage platforms also offer high-yield savings accounts or "cash accounts" that pay interest on your extra cash.

For example, here's how much yield you can earn (as of April 6, 2024) with some of the best brokerage cash accounts:

• Betterment Cash Reserve: 5.00%-5.50% APY
• M1 High-Yield Savings Account: up to 5.00% APY
• Wealthfront Cash Account: 5.00% APY

These accounts are a flexible option to park your extra cash and earn high-yield APYs, just like a bank savings account. And if you decide that you're ready to invest that money in longer-term assets, you can easily use it to buy stocks or ETFs.

6. Save® Market Savings Account

If you are willing to commit your money to a 1-year CD, you should consider opening a Market Savings Account with Save®, an innovative fintech that can help you earn significantly higher returns on your invested cash.

With Save, your cash deposits are FDIC insured in an online bank savings account, and Save then invests your interest. You can choose investment portfolios based on the S&P 500 index or other ETFs. The Market Savings Account recently earned 9.07% variable APY for a one-year investment term.

7. No-penalty CD

OK fine: if I absolutely had to open a CD in 2024, and none of these other options were available to me, I would choose a no-penalty CD. The best no-penalty CDs give you APYs that are almost as high as standard CDs, but no early withdrawal penalties.

Bottom line

I'm not a big fan of CDs because they force you to lock up your money and you can't get it out without paying annoying penalties. Putting your cash in one of the best savings accounts or other options on this list can give you high yield without the limitations of a CD.