A
certificate of deposit (CD)
It is a kind of savings account provided by credit unions and financial institutions. Usually, such accounts come with higher interest rates compared to both standard and
high-yield savings accounts
However, HYSAs also have some downsides.
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The funds in this account come with usage timeframes, along with possible associated fees. Additionally, the interest rate may sometimes fall short of making up for these constraints or could potentially lag behind those offered by various other accounts.
Here’s why you possibly wouldn’t wish to
Open a CD at this moment.
as stated by Brittany Pedersen, who leads the deposit and payment operations department
Georgia’s Own Credit Union
, and Brandon Stout, the relationship counselor from
Addition Financial Credit Union
.
You’ll Require Those Funds
Opening a certificate of deposit means locking away your funds for a specific duration. Attempting to retrieve these funds prior to the agreed-upon date will likely incur penalties. Therefore, certificates of deposit might not suit individuals requiring easy liquidity.
Unlocking a certificate deposit isn’t merely about increasing your wealth; it’s a significant pledge to improve your fiscal position,” stated Stout. “Do not initiate a CD unless you’re at ease locking away a specific sum of money till the maturity period. Terminating a CD prematurely could lead to penalty charges that must be settled.
The penalties for early withdrawals vary among different banks and certificates of deposit. Typically, accounts with extended lock-in periods might have higher fees, but this isn’t always the case.
The key point here is as follows: If you have a fixed budget and require additional income for your bills or daily expenses, or if you plan to use these funds for significant purchases shortly, or if you haven’t built up an emergency or rainy-day fund, then opening a CD would be unwise,” Stout added. “Make investments wisely!
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You Lack an Emergency Fund
Likewise, because your funds are locked into a certificate of deposit, they may not be readily available when unexpected needs arise. Many financial advisors recommend setting aside enough savings to cover three to six months’ worth of living costs for such surprises. If this safety net isn’t in place yet, it could be wiser to hold off on making investments until you’ve established one.
“If you lack sufficient savings to allocate part of them into a CD and still maintain a significant emergency fund, you might face penalties for withdrawing from the CD prematurely,” explained Pedersen.
Facing a financial crisis, this situation becomes a double blow. It’s not just about the delay in accessing your funds — which may actually be quite brief — but also the penalties that could exacerbate your economic struggles.
You Might Find a Better Interest Rate Somewhere Else
It’s easy to understand why people find CDs appealing. Typically, they offer better returns compared to regular checking and savings accounts. Plus, after you set up an account, your interest rate is locked in for good.
In spite of this, other financial institutions might offer comparable interest rates. As reported by the FDIC up until February 18, 2025, the maximum national interest rate for certificates of deposit varies between 5.75% and 5.99%, based on their duration. For money market accounts, interest-bearing checking accounts, and savings accounts, the peak interest rate stands at 5.08%.
Even though the interest rate ceiling is higher for certificates of deposit (CDs), not every bank will provide the best possible rates. If you come across a more lucrative return through another type of account—ideally one that keeps your money accessible—you may want to consider that as a superior choice.
You Have Expensive Debt
Based on Experian data, the typical U.S. family
owed $105,056 in 2024
This encompasses various types of debts such as mortgages, home equity loans, car loans, personal loans, and credit card borrowings.
Even though opening a certificate of deposit could work for some people who carry specific kinds of debt, it might be wise to hold off if your outstanding balance is significant or if you’re dealing with high-interest debts.
Pedersen stated, “It’s not advisable to open a certificate of deposit if you’re carrying high-interest debt. If the interest rate on your outstanding loan is greater than what you’d earn from the CD, it might be more beneficial to focus on reducing your debt.”
Your Institution Isn’t Insured
A large number of prominent banks and credit unions are protected—either through the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). Typically, both entities provide coverage up to $250,000 should the financial institution fail.
If you come across a bank or credit union offering CDs without insurance, consider looking for alternatives.
“I wouldn’t suggest putting your money into a financial institution that doesn’t offer FDIC or NCUA insurance,” stated Pedersen.
Reasons for Considering Opening a Certificate of Deposit (CD)
If you’re unconcerned about locking away your funds or facing potential early withdrawal fees, there are several notable benefits to consider when opening a certificate of deposit (CD).
If you have additional money idle in a low-interest savings or money market account, consider boosting your earnings by putting it into a certificate of deposit,” advised Pedersen. “Moreover, when other certificates of deposit reach their maturity, this presents an excellent opportunity to roll over those funds right back into higher-yield CDs to keep growing the returns you receive.
CDs are also a safe investment option — as long as they’re insured.
“It doesn’t matter whether you’re a parent aiming to grow your child’s college fund, or grandparents wanting to secure your family’s financial future; Certificates of Deposit (CDs) are an excellent resource to assist you in charting a course through the uncertain seas ahead,” stated Stout.
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The piece initially surfaced on
:
I’m a Banking Specialist: 4 Reasons Why Opening a Certificate of Deposit Might Be Unwise
