Is Now a Good Time To Put Money in a CD?

If you’re thinking about a place to stash your cash, interest rates on certificates of deposit (CDs) may present an appealing option.

A listener to Clark Howard’s podcast recently asked whether it makes sense right now to put $20,000 into a CD that pays 3% interest.

Are CDs Worth It Right Now?

Although CDs typically offer better saving rates than simple savings accounts, Clark says that’s not the case right now.

“The savings rates are rising so quickly that what you can get with a simple savings account with an online bank is approaching 3%, and they’re going to go past 3% as the Federal Reserve continues raising the rates it controls,” he says.

“So you could take that money and put it in a CD and know you’re going to earn 3%, but right now with an online bank you could earn nearly 3% anyway, and the rates are going higher.”

CDs vs. Savings Accounts

While CDs may be hovering around 3%, the rates are locked in for a period of time. On the other hand, savings account rates are variable and could produce higher yields as rates continue to rise.

“Buying a CD right now is a bit of a straitjacket during a time of rising interest rates,” Clark says.

Interest rates on Ally Bank’s savings accounts recently hit an all-time high, according to Money.com. As of October 6, 2022, the annual percentage yield was 2.25%. Keep in mind that rates may change.

As you may know, Clark has an affinity for the best online banks because they typically have little to no fees. Now, with favorable savings rates, he wants you to think about putting your money into a simple savings account with an online bank.

Read our guide on the best high-yield online savings accounts.

Another Place To Stash Your Cash

Clark says if you want to do something complicated that will get you a higher interest rate on your money, you could buy a one-year U.S. Treasury, which he says “is like a CD for rich people.”

“You can buy direct from the federal government and earn typically over 4% with no risk at all for a year.”

Clark says the process of buying from the U.S. Treasury’s official website treasurydirect.gov is a bit complex, “but once you know how to do it, you’ve unlocked the key to earning much higher rates on savings than you can from a bank or credit union.”

Final Thoughts

Don’t buy a CD right now: If you lock in your rate, you could miss out on greater savings down the line.

Do park your money in an online savings account.

Do buy a one-year Treasury right now: “The one-year ones are currently best,” Clark says.