The interest rates for certificates of deposit (CDs) aren’t quite as enticing as they were last year. Back in 2024, getting an APY of 5.00% was pretty standard, but now, the top CD rates have slipped down to around 4.00%.
Looking ahead to 2025, there could be more reductions on the horizon.
At its meeting in January, the Federal Reserve opted to keep interest rates unchanged, and it seems like we might not see any significant shifts soon. However, the Fed has hinted at the possibility of rate cuts, and a number of experts are predicting these might occur in 2025.
If the federal funds rate does decrease, CD yields are likely to follow suit. This raises the question: should you lock in a rate of 4.00% or higher right now?
Our Picks for the Best High-Yield Savings Accounts of 2025
American Express® High Yield Savings
- APY: 3.80%
Member FDIC. Rate as of February 11, 2025. Terms apply.
Capital One 360 Performance Savings
- APY: 3.70%
Member FDIC. Rates are subject to change as per the Capital One website.
Western Alliance Bank High-Yield Savings Premier
- APY: 4.30%
Requires $500 to open, but only $0.01 to earn top APY. Check the product website for the most current rate.
Interest Rates Impact Expected to Be Modest
Even if there’s a minor reduction in the federal funds rate in 2025, the impact on CD rates might be modest. While CD rates don’t exactly mimic the federal rate, they do tend to follow its movements closely. Let’s take a look at how a drop in APY might alter your earnings on a 1-year CD:
| Initial Investment | Earnings at 4.00% APY | Earnings at 3.75% APY | Earnings at 3.50% APY |
|---|---|---|---|
| $5,000 | $200 | $187.50 | $175 |
| $10,000 | $400 | $375 | $350 |
| $20,000 | $800 | $750 | $700 |
Even with a substantial investment in CDs, any upcoming rate cuts are likely to have only a minor influence on your returns.
Are CDs Even Worth It?
CDs provide safe, guaranteed returns; they’re FDIC insured, providing peace of mind that your funds are secure. Yet, some alternative options might offer a better fit for your financial goals.
High-Yield Savings Accounts: Competitive Rates with More Flexibility
Currently, the best savings accounts offer rates comparable to CDs—around 4.00% or potentially even higher. Unlike CDs, these accounts provide the flexibility of accessing your money whenever necessary, making them ideal for an emergency fund or money that needs to be readily available.
Explore our list of top high-yield savings accounts if you’re aiming to earn significantly more than the national average APY.
Stock Market: Potential for Higher Returns
On average, the U.S. stock market has delivered annual gains of about 10% since 1957, as measured by the S&P 500 Index. For funds earmarked for long-term growth, stock investments via an IRA or standard brokerage account could be more beneficial. By investing in an index fund, you can gain exposure to 500 of the largest U.S. companies. Remember, only allocate money you won’t need for at least three years to ride out any short-term market downturns, reducing the risk of selling stocks at a loss.
Don’t Be Hasty with Your Investments
While CDs are a solid investment choice, it’s important not to rush into buying them solely because interest rate drops are anticipated. Make sure CD investments are compatible with your financial strategy, and consider whether there might be more advantageous alternatives available.
