CD Rates Top 5.15%. Here's Why I Still Wouldn't Open One (2024)

The best CD rates currently top 5.15%. That's a pretty amazing rate considering you aren't taking on much risk since the majority of CDs you'll find are FDIC insured. It's also unusually high, as a few short years ago, even the most competitive rates were in the 2.00% to 3.00% range.

Despite these great rates, I'm not interested in opening a CD. And you may not want to jump into investing in a CD either. Here are a few reasons why.

1. The stock market still offers a better shot at great returns

The biggest reason I'm not buying a CD right now is because I'd rather put my money into the stock market. I believe investing in the stock market will be a better financial choice over the long term. Historically, investors have earned much better rates by buying stocks than CDs.

The S&P 500 has been a great investment for long-term investors, since it has provided average annual returns of 10% over the past 50 years. That's about double what the best CD rates currently offer (as of May 2024). I'd rather earn 10% than 5.15% on my money, especially since I don't view the S&P 500 as being a very risky investment (although there are always some risks when putting money into stocks).

Since I have at least five years until I'll rely on any of the money I'm saving and investing, I can afford to wait out downturns in the stock market that might happen, so there's no reason to accept the lower rates CDs offer when this better opportunity is available.

2. I'd rather keep my short-term savings in a high-yield savings account

I'm also not interested in CDs because I don't want to tie up my short-term savings in an account I can't access easily.

CDs have terms, which are periods of time that you must keep your money invested and that your return is guaranteed. Terms typically range from a few months to five years. Even though 3-month CDs don't require making much of a commitment, I still don't want to give up flexibility with my short-term savings. After all, the reason this money isn't in the stock market in the first place is because I might need it soon.

It's not worth taking the chance of paying a penalty to remove my CD funds early when high-yield savings accounts are providing rates comparable with CDs right now. Of course, yields on savings accounts could decline if the Federal Reserve lowers interest rates. I won't get the benefit of having my rate locked in for the term of a CD, as I would if I opted for that investment instead.

But, I don't think the Federal Reserve is going to drop rates anytime soon, as the Fed won't cut rates until more progress is made on lowering inflation.

More importantly, I don't view my short-term savings as an investment. That's the very reason why it isn't in the market in the first place. I'm not trying to chase the highest possible rates with this money. Instead, my goal is to keep it ready when I need it.

3. CDs don't offer the same tax benefits as T-bills

Finally, the last reason I won't invest in CDs is because I'd prefer to opt for T-bills instead if I want a short-term investment.

T-bills provide similar yields to CDs, although they typically provide you a guarantee of that rate for a shorter time like 52 weeks or less. But, when you invest in T-bills, you benefit from favorable tax treatment. Interest is not subject to state or local taxes.

While CDs may seem tempting with the high rates today, the reality is there are still better choices you should consider instead. I prefer those other options, and you might too.

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