3 Reasons Not to Open a CD in 2024 -- Even Though Rates Are Outstanding

If you're like me, you want to grow your money as efficiently as possible. And with today's CD rates sitting at 5% or even a little higher, it's easy to see why opening a CD might seem like your best course of action.

But actually, opening a CD this year is a move that might come back to bite you. Here are a few reasons not to put money into a CD, despite the fantastic rate you can lock in.

1. You need your money for emergency bills

It's not just that CDs are paying a touch more than savings accounts these days. There's also the fact that with CD, your interest rate is guaranteed for a set period of time.

With a savings account, you could start out earning 4.25% on your money only to see your APY fall to 4%, and then 3.85% a month or so after that. What a great way to mess with your head.

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It's understandable that you'd want the guaranteed interest rate a CD can provide. But if the money you're thinking of putting into one is cash you might need for emergency bills, then a CD is a seriously poor choice. The whole point of having an emergency fund is to give yourself accessible cash. CDs are hardly accessible.

I mean, sure, you can technically take your money out of a CD before it matures if you're really in a pinch. But you'd face a costly penalty, the exact amount of which depends on your bank. Why risk a penalty when you could stick to a savings account instead and still earn a decent return on your emergency fund?

2. You're trying to buy a home

Isn't today's housing market a total beast? Not only are mortgage rates ridiculous, but home prices are pretty much out of control. I wouldn't blame you in the slightest if you were to take your down payment funds and just lock them up in a CD for the next year or two to earn some nice interest on that cash.

But here's the problem: What if that unicorn of a house hits your local market later this year at a time when mortgage rates have fallen just enough to make it affordable? Suddenly, homeownership may be within reach. But gosh darn it -- you've got your down payment funds tied up in a CD, and you're looking at an expensive penalty for taking the money out.

If you have money earmarked for a specific goal that isn't years out, then you may want to stick to a savings account. And while you might assume you won't be buying a home anytime real soon based on today's market, you never know when an opportunity might present itself.

3. You're not planning to use the money for a really long time

CDs can be a good place to put extra cash. And you can even, in some cases, use them to save for a mid-term goal. But if you're saving for a far-off goal, like retirement, then you're truly better off investing your money than putting it into a CD. A 5% return on your money in a CD seems like a great deal, right? But over the past 50 years, the stock market's average return has been 10%.

Let's say you have $5,000 on hand you want to use for retirement. You could open a 5-year CD, in which case you'd be looking at a lower rate, but a competitive one nonetheless -- say, 4%. But with a stock portfolio, you might earn 10% on your money over the next five years, thereby turning your $5,000 into about $8,052. A 5-year CD at 4% could leave you with just $6,083.

And yes, investing is not something you should be doing over just a five-year window -- it's something you should aim to do for decades. But if the money you're thinking about putting into a CD is money you want to use for retirement, you might as well get a better jump on building a nest egg by investing it from the start.

To be clear, opening a CD in 2024 while rates are up isn't automatically a bad idea. Rather, it's just that you shouldn't do so if any of the above situations apply to you.