3 Reasons to Still Open a CD — Even With Rates Below 5%

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The Federal Reserve lowered its benchmark interest rate in mid-September. And it’s expected to continue lowering it in the coming year.

That’s good and bad news for consumers. On the plus side, it should lead to cheaper credit card and loan interest rates. However, CDs and savings accounts are already paying less interest than they were a couple of months ago. And that trend is only likely to continue.

In fact, you may have noticed that CDs are no longer paying 5% like they were for much of 2024. And that’s certainly a bummer.

But that doesn’t mean a CD is a bad idea today. Here are a few great reasons to open one now.

1. CD rates are still pretty competitive

You may not be able to find a 5% CD again anytime soon. But if you look around, you might find a CD paying 4.5%, or 4.25%. And while that’s less than 5%, it’s not so much less.

For a $1,000 deposit, a 12-month CD at 5% earns you $50. The same CD at 4.5% earns you $45. And sure, an extra $5 would be nice, but it’s not exactly a life-changing sum.

Plus, if you shop around, you might find a CD that pays close to 5%, even if you’re not quite able to get 5% on the nose. Click here for a list of the best CD rates today.

2. CD rates are likely to keep falling in the coming year

Today’s CD rates aren’t much lower than the rates we saw earlier in the year. But as the Fed continues lowering its benchmark interest rate, CDs are likely to start paying less.

By early 2025, you may not be able to lock in a CD at 4% or more. So if you like the idea of opening one, do it now.

If you’re saving for a goal that’s a few years away, you may want to consider a 24- or 36-month CD. A two- to three-year period isn’t enough time to invest your money, because you may not have an opportunity to ride out a stock market decline. So if you’re planning to buy a home or car in a few years, you may want to park some of the cash you’re saving for it in a CD so you can make some extra money on it.

3. A CD may motivate you to leave your money alone

Savings accounts aren’t paying so much less than CDs today. And with a savings account, you get the flexibility to withdraw your money whenever you feel like it.

But CDs have a couple of advantages over savings accounts. First, with a CD, your interest rate is guaranteed. With a savings account, your interest can — and is likely to — fall in the coming months as the Fed continues making rate cuts.

Also, CDs typically charge a penalty for withdrawing your money before they mature. With a savings account, you can take a withdrawal at any time.

But that’s not necessarily good if you’re pushing yourself to leave your money alone for a specific goal. With a CD, you may be more likely to stay on track because you’ll commonly face a costly penalty for taking your money out early — this will cost you some or all of the interest you’ve earned, and you may even lose some of your principal if you haven’t had the CD open long.

You may be sad to see 5% CD rates disappear. But that doesn’t mean you can’t still benefit from a CD. It pays to look around for a great deal and open one while rates aren’t too far off from 5%.