CD Rates Are Near 5%. Here's Why I'm Still Not Tempted to Open One

Certificates of deposit (CDs) rates have soared over the past few years, making it easy to find CD rates of 5% or higher.

At these rates, stashing some extra cash into a CD makes sense for some investors. But I'm not convinced it's the best place for my money. Here are three reasons I'm happy to sit out the current CD market.

1. I don't want my money tied up

I'm considering buying a house later this year, but the timing is uncertain. If I find something I like and can afford this summer, I may buy it soon. If I don't, then I'll wait longer.

This uncertainty makes putting the cash I've saved for a down payment into a CD a terrible idea. If I opened a 12-month CD paying a 5% annual percentage yield (APY) but then decided to buy a house in three months, I wouldn't have access to my money when I needed it.

And taking the money out early would reduce my earned percentage to about 2.5%. On top of that, I'd have to pay fees for closing the CD early.

2. I don't like the idea of paying penalties to access my cash

Call me old fashioned, but I hate fees. And I really don't like the idea of paying fees to access my hard-earned money.

If I opened a CD and decided to withdraw my money early, there's a good chance I'd be charged for doing so. Most banks charge 90 days of simple interest for the money you withdraw from a CD if the term length is 24 months or shorter. For CDs with terms longer than 24 months, you may pay 180 days of simple interest on the amount withdrawn early.

So if I put $10,000 into a 12-month CD paying 5%, then took the money out six months later, I'd owe about $122 in fees.

I understand that potential penalties exist to discourage people from taking their money out early, but it still doesn't sit well with me. No thanks, CDs.

3. I can get a high yield from a savings account

If CDs were the only place to earn relatively risk-free interest on my money, I'd be more open to them. However, plenty of high-yield savings accounts pay 5% interest or higher right now.

High-yield savings accounts don't have term restrictions, so you can put money into them and withdraw it at any time. In short, I can earn 5% on my money and access it whenever I want to, penalty-free.

One potential drawback of keeping the money in a savings account versus a CD is that the APY isn't guaranteed with a savings account. As long as you leave your money in the CD for the entire term, you'll get the full APY. For most savings accounts, the yield can change at any time.

For all the reasons above, I'm fine with leaving my money in savings or money market accounts and avoiding CDs. They can be a good investment option if you're looking for a low-risk way to earn interest and don't mind having your money locked up. But I'd rather have the flexibility of a savings account.