Why You Shouldn't Get Too Dazzled by CD Rates (Even at 5.15% APY)

Savers who want to earn high returns on their cash have a chance to make serious money, especially if the Fed doesn't cut interest rates anytime soon. As of this writing, the best CD rates from our curated list are offering as much as 5.15% APY -- so if you put $10,000 into that CD, after one year you'd earn $515 of interest.

Many people might believe that CDs are the best place to put your savings -- but this is not always true. CDs offer fixed rates and competitive APYs, but they have drawbacks, too. You have to commit your money to a CD for a fixed length of time, and if your plans change and you want to pull out your deposits, you'll have to pay early withdrawal penalties.

Even with APYs at 5.15%, there are still some better places to put your money than a CD. Let's look at a few.

1. High-yield savings account (up to 5.36% APY)

The best savings accounts are currently offering APYs of as high as 5.36%. That's 0.21% higher than the best CDs -- so with $10,000 deposited for a year, you'd earn $21 more with the best savings account than the best CD.

One drawback of savings accounts is that they don't offer fixed interest rates. Savings account APYs can change at any time. If the Fed cuts interest rates in the next year, your savings account APY will likely go down, too. But for now, yields on the best savings accounts are competitive with -- and often better than -- the yields offered by the best CDs. And with a savings account, you don't have to pay early withdrawal penalties.

2. Money market account (up to 5.30% APY)

Another unique type of savings account (which can also be a better deal than CDs) is a money market account. This account invests your cash in low-risk, short-term securities like government debt and CDs -- but there's no risk of loss, with FDIC insurance. The best money market accounts pay up to 5.30% APY now -- better than the best CDs!

3. Save Market Savings Account (up to 9.07% variable APY)

If you're willing to commit your cash for a year (or more), a fintech company called Save (joinsave.com) could offer potential for higher yield on your savings. The Save Market Savings Account lets you deposit your cash in an FDIC-insured online savings account with Save's partner bank. Save then acts as your fiduciary investment advisor to invest the interest on your savings in a diversified portfolio of ETFs.

With Save's Market Savings Account, your deposits are never at risk, but your money can grow faster than any typical CD or bank account. Based on recent performance, the Save Market Savings Account can deliver up to 9.07% variable APY. So if you put in $10,000 and got that yield, after one year you'd have earned $907 of investment returns.

Exact results are not guaranteed and will vary with market performance. But if you want to earn a higher return on your savings, Save can help make it possible.

4. Wealthfront bond investments (up to 5.10%-5.49% variable APY)

Wealthfront is one of The Ascent's picks for best robo-advisors, but it's not just a great platform for buying stocks. Wealthfront also offers two unique ways to invest in bonds, with the power of professional management and automation.

Wealthfront Automated Bond Portfolio (5.49% variable APY)

This automated portfolio can be a good fit for money that you don't need for your emergency fund, but that you might need in one year (or more). It invests your cash in a diversified mix of short-term, low-risk government bonds and some higher-risk (but higher-yield) corporate bonds.

The Wealthfront platform handles all the work of rebalancing and reinvesting dividends. Based on recent performance, the Wealthfront Automated Bond Portfolio is earning 5.49% variable APY, after Wealthfront's advisory fee. That's better than the best 1-year CDs!

Wealthfront Automated Bond Ladder

This is a new bond investment account from Wealthfront that invests only in U.S. Treasuries, with a staggered range of maturity dates. Similarly to a CD ladder, this bond ladder keeps your cash invested in multiple bonds that mature at different times, so you can balance higher yields and easy liquidity.

Wealthfront's platform automatically evaluates U.S. Treasuries based on yield and maturity date, and does all the rebalancing and dividend reinvestment for you, based on your time horizon and preferences. As of May 14, 2024, the Wealthfront Bond Ladder was earning 5.10%-5.27% variable APY (after Wealthfront's advisory fee).

Here's a fun bonus of this account: because it only invests in U.S. Treasuries, interest earned from the Wealthfront Bond Ladder is exempt from state and local income taxes. So if you're a higher-income investor from a state that charges relatively high state income taxes (like New York or California), this investment account could help you earn higher yield by not having to pay state and local taxes.

Bottom line

Don't assume that CDs are the only way to earn high yield on your savings. There are several other options on the market, like high-yield savings accounts, money market accounts, and innovative investment accounts from Wealthfront and fintechs like Save.