In a world of not many sure things, a certificate of deposit is a rarity. You can store money in it, helping you earn a guaranteed return on investment.
And they’re perfect for short-term goals. Need to save for a vacation home, a dream trip or a side business you wanted to start up since retiring? A CD can help you reach them.
Best of all, you can earn rates above 4%. With the latest CPI report having inflation at 2.8%, it allows you to outpace inflation. At least, for now.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Things to consider with a CD
CDs work best when you view a portion of your money as untouchable until you reach your goals. The reason for this is if you open a certificate of deposit and need to withdraw your money before your term expires, well, banks don’t like it.
In turn, you’ll have to pay an early termination fee since removing a portion of your money from a CD closes it. That penalty fee will likely offset the interest you earned. If you want more flexibility in savings, either consider a no-penalty CD or a high-yield savings account.
Even so, CDs are excellent saving vehicles. I’ve used them for three and six month savings goals, and they’ve done well for me.
With these things in mind, there are many CD types available. Here are three I would recommend against, at least for the time being.
1. Long-term CDs
Long-term CDs allow you to set money aside from three to five, even 10 years in some cases. When interest rates on savings are high, it’s a home run option for risk-averse savers. CDs come with fixed interest rates, meaning the rate you lock in is the one you’ll have until the term expires.
Here’s the problem with locking in a longer-term CD right now: We don’t know where things might head. The latest CPI report indicated inflation cooled some. It makes some breathe a sigh of relief while others, like me, approach this news more cautiously.
The reason for this is the latest report didn’t include any impact from tariffs. Tariffs will raise prices on goods, which could alter future CPI reports. It might also alter how the Fed approaches interest rates moving forward.
There could also be a situation where the Fed might look at the current circumstances in the future and decide to raise rates if inflation becomes too high. While this isn’t a likely scenario, we are treading in somewhat murky waters too.
A smart approach is to lock in a shorter-term CD while seeing where the market goes. You’ll earn a similar rate as a long-term one, but you’ll also gain quicker access back to your cash. If better savings or investment opportunities arise soon, it gives you the opportunity to go for them.
Account | APY | Min Deposit |
|---|---|---|
4.45% | $500 | |
4.40% | $1,000 | |
4.40% | $5,000 | |
4.40% | $25,000 | |
4.25% | $500 | |
4.25% | $1,000 | |
4.25% | $25,000 | |
4.21% | $1,000 | |
4.21% | $1,000 | |
4.10% | $1,500 | |
4.08% | $2.500 |
2. Callable CDs
A callable CD is unique in that your bank might decide to end the term before its maturity date. The most likely reason a bank calls it early is if interest rates lower, as they wouldn't want to be on the hook paying higher rates.
These CDs also have what’s known as a call protection term. During this term, your bank cannot call your CD to mature, giving you time to earn some money on it.
While these CDs can offer higher rates of return than a regular CD or even high-yield savings accounts, the decision on when to end it can be out of your hands. This can limit the returns you earn compared to a regular CD, where you won’t have to worry about your term ending prematurely.
3. CDs from traditional banks
Traditional banks might not offer as high of a return as their online predecessors. To demonstrate, a 12-month CD with Huntington Bank earns you 0.50% APY. Meanwhile, a 12-month CD with Bread Financial earns you 4.10% APY.
The difference is Bread Financial doesn’t have physical locations. That means less overhead they have to pay. Therefore, while physical banks offer convenience, that comes at a cost.
Furthermore, if you don’t feel comfortable switching to an online bank, see if your local branch has any promotional rates. They usually do these on shorter term CDs, allowing you to maximize savings in a quicker window.
The bottom line
CDs are a solid choice for savers with a low-risk tolerance, offering a guaranteed return. Right now, many terms pay over 4%. However, if maximizing savings is your priority, you may want to avoid CDs with traditional banks, callable CDs and long-term CDs, as they often come with lower rates, withdrawal restrictions or added risk.
If you're saving for five or more years, investments have historically offered higher returns. Callable CDs and those from traditional banks can also limit your earnings — callable CDs may be redeemed before maturity, cutting interest short, while brick-and-mortar bank CDs often come with lower rates.
Related content
-
The Best Places for LGBTQ People to Retire AbroadLGBTQ people can safely retire abroad, but they must know a country’s laws and level of support — going beyond the usual retirement considerations.
-
Financial Planning's Paradox: Balancing Riches and True WealthWhile enough money is important for financial security, it does not guarantee fulfillment. How can retirees and financial advisers keep their eye on the ball?
-
How to Get Apple TV Plus for just $2.99For a limited time, you can get three months of Apple TV Plus for just $2.99 per month. Here’s how to get the deal.
-
Don’t Panic About the “Retail Blackout” – See Which Stores Are Closing (and Which Aren’t) for Easter 2025Dozens of major retailers are planning to close their doors on April 20. Find out which of your go-to stores are on the list.
-
Home Insurance: How to Cut Costs Without Losing CoverageNatural disasters are causing home insurance premiums to soar, but don't risk dropping your coverage completely when there are ways to keep costs down.
-
Why Homeowners Insurance Has Gotten So Very ExpensiveThe home insurance industry is seeing more frequent and bigger claims because of weather, wildfires and other natural disasters.
-
Zelle App Shut Down? Why Zelle Has Discontinued Its AppWith the Zelle app shut down, learn how you can still use Zelle and which other mobile payment apps you might want to consider.
-
Use This 1-Year CD if You’ll Owe Taxes Next YearA one-year CD allows you to set money aside now for taxes you'll owe next year. We'll show our best choice.
-
How to Lower Home Insurance Rates When Climate Change Increases CostsA top insurer warns the damage climate change causes is making it cost-prohibitive for insurers in some areas. Learn how to protect your home and lower costs.
-
Stick to the Plan: Don't Panic During Economic UncertaintyTake a breath and step back. Focus on a solid fiscal foundation to stabilize your investments during stock market volatility.
