Are CDs Still Worth Opening?

Certificates of Deposit (CDs) were introduced in the U.S. in the early 1800s and hit peak popularity in the 1980s when CD rates hit an all-time high. They were recognized as an attractive option for a safe, high-yield investment. But as the economy changed, rates declined, yields dropped, and stocks and mutual funds started looking like better options to a lot of people.

Since then, rates have risen and fallen and risen again, but what has always remained consistent is the security that a CD offers. Unlike a high-yield savings account where rates can be variable, a CD rate is locked in at the time of deposit. You know exactly how much you will be getting at the end of the agreed-upon term. In a time where prioritizing financial stability is crucial, CDs offer a predictable return on your investment.

If you’re wanting to elevate your savings strategy, you may be asking the question: Are CDs still worth opening? The answer to that is, generally, yes. But the better questions is, “Are CDs still worth opening for me?”

Let’s explore the benefits of CDs and who they are right for.

What are the benefits of CDs?

• Higher interest rates: CDs typically give you a higher return than a regular cuentas de ahorro.
• Steady returns: Your returns are predictable. You know exactly how much you’ll earn by the end of the term. This allows you to set your personal financial goals accordingly.
• Low risk: Your money is FDIC-insured, not placed in any investments that could lose money, and isn’t subject to changes in the economy that could bring changes to your rate.
• Easier to save: Since a CD is a contract with your financial institution to leave your money in the account until it reaches the agreed-upon maturity, your funds are not liquid. Withdrawals come with penalty fees, so you won’t be as inclined to remove money from the account.
• Diversified financial portfolio: Because they are a fixed-rate investment, CDs do not respond to market conditions like other forms of investments do. Having CDs as part of your portfolio offsets possible downturns with other investments and allows your portfolio as a whole to be less volatile.

Who are CDs right for?

• Those who have a low risk tolerance: If you want to see returns but don’t want to expose your money to the market, CD returns are a sure thing. The more you put in, the more you get out.
• Those with specific financial goals: If you are saving for a car, a vacation, a down payment on a house, you can choose your deposit and term knowing you’ll reach those goals when the CD has reached maturity.
• Those in retirement or close to retirement: A CD helps preserve your money without any risk.
• Those who tend to spend their savings: If you need a little extra help setting money aside, the lack of liquidity and penalty fees are strong deterrents to transferring money out of your savings.
• Those looking for portfolio diversification: Because economic events, interest rate changes, and geopolitical issues impact markets, diversification helps protect your portfolio from being overly exposed to any single risk. If you’re interested in a balanced portfolio, a fixed-rate CD is a strong addition.

While CDs might not offer the sky-high returns of riskier investments, their reliability, predictability, and security make them a smart choice for many savers. When considering if a CD is worth it for you, think about your risk tolerance, your personal financial goals, and your timeline for those goals. If you’re looking for a sure thing, a Certificate of Deposit remains valuable tool still worth opening.