3 Reasons I'm Not Touching 12-Month CDs, Even With Rates at 5.25%

Well, folks, the CD party might be coming to an end.

Although you can still find great rates on short-term CDs, many are trending downward. For instance, not too long ago, you could find CDs on the financial platform Raisin with APYs near 5.50%. Nowadays, the highest-paying CDs on the same platform don't reach above 5.30%. While that's a slight difference, it could be indicative of what's to come. It's gravity: What goes up must come down.

Even so, I haven't been investing in short-term CDs for some time now. My reasons are somewhat personal, but they embrace general principles that could overlap with other people's apprehensions, too. Even though the best 12-month CDs on our curated list are paying out at 5.25%, here's why I'm not investing in them.

1. I'm preparing for a cross-country move

In July, I'm moving from Portland, Oregon to Newark, New Jersey to attend Rutgers University in the fall. Since we're shipping all of our stuff and flying, I have some major expenses coming up, including shipping my car, renting a shipping container, airfare for three people and two cats, and a deposit on a new apartment. As you can imagine, I'm not in a position to lock my savings up for a year.

In general, CDs make good investments when you can part ways with your savings for the length of your term. Because early withdrawal penalties on CDs can zap any interest you've earned (not to mention take some of your principal), they're not to be messed with if you need cash flow now.

2. High-yield savings accounts still have competitive rates

High-yield savings accounts continue to have competitive rates, many on par with the best CDs. I'm currently earning 5.25% on my savings in the UFB Secure Savings Account, which is helping me grow my money even without CDs.

True, if interest rates go down in 2024, the APY on this savings account will likely drop, too. In this case, locking a higher APY on a long-term CD might mean earning high interest for a longer period. But since the Federal Reserve hasn't started dropping rates yet, I can take advantage of high-yield savings accounts at least until my move is over.

3. Sneaky medical bills have left me more cautious

To be sure, I have invested in several CDs during this interest rate cycle. I was fortunate to lock into rates just when they were starting to peak last year and am now reaping interest on some short-term CDs that have matured. Rather than reinvesting this CD interest -- which was my plan originally -- my cash has been diverted to a new expense: our daughter's hospital bill.

Last month I was sent a $2,600 hospital bill for my daughter's birth. Although our health insurance covered my wife's portion of the hospital stay, it only covered half of my daughter's stay. We only stayed two nights, but we ended up paying $2,150 per night for just my daughter. We also paid $300 for three lactation consultations. This was the most frustrating part of the bill, as our consultant only helped us once and more or less "checked in" on us the other two times.

Fortunately, we have an emergency fund to cover the bill. Even so, with our cross-country move coming up, the surprise expense has made me feel slightly more risk averse. Though I'd like to capture today's best rates before they drop, I'm going to pass on the 12-month CDs for now. Having flexible access to my savings is more important right now than accumulating interest.