Is a certificate of deposit (CD) still a good investment?

Core Insights - Interest rates on certificates of deposit (CDs) have decreased, with the average rate now below 2% since the Federal Reserve's rate cuts began in September 2024 [1] - Despite the decline, there are still CDs available that offer rates over 4% APY, making them a viable investment option [2] - CDs are particularly suitable for saving towards specific future goals, such as a home down payment or wedding expenses [3] Investment Characteristics - CDs allow investors to lock in a competitive fixed rate for a specified term, typically ranging from six months to five years, with penalty-free access to funds upon maturity [4] - On average, CDs provide about one percentage point higher interest than traditional savings accounts, with fixed rates that do not fluctuate during the term [5] - A high-yield savings account (HYSA) may offer similar rates, but the fixed nature of CDs can make them a better choice if funds are not needed until maturity [6] Maximizing Returns - Maintaining a separate emergency fund is crucial, as withdrawing from a CD before maturity incurs penalties [8] - Shopping around for the best CD rates is essential, as there is significant variation among financial institutions, with rates potentially reaching 3-4% [9] - Monitoring Federal Reserve actions is important, as changes in the federal funds rate directly influence CD rates, allowing investors to choose optimal terms [10] Strategic Considerations - Investors should hold CDs until maturity to avoid penalties, which can include losing several months' worth of interest or a percentage of the interest earned [11][12] - In anticipation of rate increases, investors may consider short-term CDs or a CD ladder strategy to take advantage of higher yields later [12] - For expected rate cuts, long-term CDs with locked-in competitive rates should be prioritized [12]