Why I Wouldn't Open a 6-Month CD -- Even With Rates at 5%

Based on the latest signals from the Federal Reserve, interest rates are (for now) staying high -- but the Fed could cut interest rates later in 2024. That means now might be a good time to open a CD.

The best 6-month CDs are currently paying 5.00% APY (or higher). But is now really a good time to invest in 6-month CDs, and is this type of account the best choice for your cash savings?

I'm skeptical about 6-month CDs. The best savings accounts, and even the best 1-year CDs, could be better.

Here are a few reasons why I wouldn't open a 6-month CD right now -- and maybe not ever.

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 July 1, 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 July 1, 2024	Min. to earn $1
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1. You could get a higher APY from 1-year CDs

If 6-month CDs gave you the highest APY on your savings, then that would be a great reason to open one. But this shorter-term CD doesn't always give you bigger yields. Sometimes you can find higher APYs from 1-year CDs than you'd get from 6-month CDs, even at the same bank.

For example, Barclays Online CDs and Discover® Bank CDs are two of The Ascent's picks for best CDs. Both of these banks offer better APYs on 1-year CDs than on 6-month terms.

Here's how these top-rated banks' CDs stack up:

If you have a specific short-term financial goal that you want to use your CD money for, then it could make sense to choose a 6-month CD instead of a 1-year CD. But don't assume that 6-month CDs give you the highest yields. You could get a higher APY (and earn more money on your savings) by committing to a full year's term.

2. You're not guaranteed the same (high) APY after six months

Here's another potential drawback of a 6-month CD: you're only guaranteed to get that APY for six months. After the 6-month term is up, also known as your CD reaching "maturity," the bank will give you the option to withdraw your cash, move your money to a different CD or savings account, or roll over your deposit into a new 6-month CD. But your new 6-month CD might have a totally different APY.

A lot could change in the next six months after opening your CD. The Fed could cut interest rates, or your bank could decide to stop offering such high APYs. Some 6-month CDs with the most tempting yields are only available for a limited time, as a special offer CD -- that great deal on a 6-month CD might turn out to be a "one time only" situation.

If you want the highest yields on your savings, putting money in a 6-month CD could leave you high and dry -- you might have to move your money to a new account or a new bank in search of higher APYs.

3. You have to pay early withdrawal penalties

Perhaps the biggest reason why I'm not opening any CDs right now -- of any term length -- early withdrawal penalties. If you open a CD and then have to take your money out before the term is up, you'll be charged early withdrawal penalties. These penalties can eat up most (or all) of the interest you earn on the CD.

I can't handle that level of commitment to a bank account. I don't want to lock up my money, even for a great APY higher than 5.00%. Keeping my money available, liquid, and easy to access in a bank savings account or money market account is a better option for me -- even if the APY is slightly lower than a 6-month CD. Unless you're 100% certain you won't need to access your cash for the next six months, consider a savings account instead.

4. The best savings accounts and money market accounts have higher APYs

Want a high APY on your savings and total flexibility for when and how to use your cash? Right now, you could get a higher APY than a 6-month CD from the best savings accounts (up to 5.36% APY) or the best money market accounts (up to 5.30% APY).

The APYs on savings accounts and money market accounts are not fixed, like they are with CDs. A 6-month CD gives you a guaranteed APY for the next six months, even if the Fed cuts interest rates; if interest rates go down in the next six months, a bank savings account or money market account will likely go down too.

Bottom line

The best 6-month CDs are not always a great deal compared to the best savings accounts, money market accounts, or even the best 1-year CDs. With a 6-month CD, you have to lock up your cash, risk getting charged early withdrawal penalties, and you might not even get the best APY available at the same bank. Consider your financial goals carefully before committing to a 6-month CD.