This Is The Only Reason I Might Buy a CD Right Now

CDs are an investment product that I have never been interested in. There are some big downsides to them, and the returns they offer generally haven't been very impressive.

But right now, I'm actually considering putting some money into one. And there's one key reason why I may have changed my mind about whether a CD makes sense for me.

CDs could be a great option now for this big reason

After steering clear of CDs for my entire adult life, I'm thinking seriously about buying one now because I want a bank to commit to paying me today's high yields for at least a few years.

Currently, interest rates on both CDs and savings accounts are really high. I could buy an Ally High Yield CD or a Capital One 360 CD today that locks in my rate for five years at 3.90%. Or, I could instead put my money into a high-yield savings account, like the SoFi Checking and Savings account. This account is currently paying up to 4.60% APY. That would give me a better rate than a 5-year CD would.

Our Picks for the Best High-Yield Savings Accounts of 2024

Capital One 360 Performance Savings APY 4.25% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings Member FDIC.	APY 4.25% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.	Min. to earn $0
American Express® High Yield Savings APY 4.25% Rate info 4.25% annual percentage yield as of June 27, 2024 Min. to earn $1 Open Account for American Express® High Yield Savings Member FDIC.	APY 4.25% Rate info 4.25% annual percentage yield as of June 27, 2024	Min. to earn $1
Citizens Access® Savings APY 4.50% Min. to earn $0.01 Open Account for Citizens Access® Savings Member FDIC.	APY 4.50%	Min. to earn $0.01

But like pretty much all savings accounts, SoFi's rate is variable. It's great right now. It probably will stay great for at least the next few months and possibly into 2025. But, the Federal Reserve has made it very clear it is hoping to cut interest rates either this year or next once inflation gets under control.

When the Fed cuts rates, the great savings account yields on offer today are going to disappear. The ability to buy new CDs at such a competitive rate is also going to be lost. But if I have a 5-year CD, my rate will be locked in. As everyone else without a CD sees their return on investment (ROI) decline on their savings, I'll get to keep earning a great rate for the full 5-year CD term.

I don't want to miss the chance to ensure a really competitive yield when CD rates (and savings account rates) may not reach these current levels again for potentially decades once they go down.

Should you buy a CD right now?

Now, one reason I've always hesitated to buy a CD is because there is a downside to these accounts. You have to leave your money in place for the duration of the term or else you face being penalized with an early withdrawal fee. And that downside remains right now.

If you cannot commit absolutely to leaving your money invested until the CD matures, you don't want to buy a CD -- even though rates are great right now. It's not worth the penalties.

However, since interest rates are so high right now, and most likely not going to stay at this level, you aren't taking on a huge amount of interest rate risk by buying a 5-year CD -- unlike when yields were lower.

Ultimately, you'll need to decide if you think rates are at their peak and you'll need to be sure a CD makes sense given your timeline for your funds. But the fact you can lock in a really competitive yield for half a decade when it's almost inevitable rates are going to fall relatively soon does make CDs worth at least considering.