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If you're looking for places to invest your money, certificates of deposit (CDs) are a safe choice. They offer fixed rates, and rates are fairly high right now. Many of the best CDs are offering about 4%. Depending on how long of a CD you want, you could possibly get even more.
Despite their perks, CDs often aren't the best investment option. Before you open any CDs for 2025, here's when they work as an investment and when they don't.
The most common reason to invest is to build long-term wealth. If that's your goal, a CD isn't the way to go. CDs have high rates for a banking product, but over long periods of time, their returns are much lower than historical returns for stocks and real estate investments.
Let's look at the stock market as an example. The S&P 500 is an index tracking 500 of the largest publicly traded companies. While returns vary, it has averaged about 10% per year for over 50 years. That's much higher than the 4% or so you could get from a CD.
Here's how much a $10,000 investment would turn into in a CD and in the stock market:
| Time Period | CD at 4% | Stock Market at 10% |
|---|---|---|
| 10 years | $14,802 | $25,937 |
| 20 years | $21,911 | $62,275 |
| 30 years | $32,434 | $174,494 |
You can invest in stocks or index funds that follow the entire stock market through an online stock broker. This is a much better way to build wealth and save for retirement than opening a CD.
If you're looking for a user-friendly online broker, consider Robinhood. It charges no commissions on stocks and ETFs, and it even has an IRA match to help boost your retirement savings. Click here to learn more and open an account today.
It's not a good idea to put all your money in the stock market. Stock prices go up and down, so for short-term investing, you're better off with investments that won't decrease in value.
CDs can be a match in this situation. If you have money that you won't need right away, you could put it in a CD to earn fixed income. Imagine you have $25,000 saved for a down payment on a home. You're not planning to go house hunting for another 18 months. You could put that money in a CD so it can grow without taking on any risk.
Keep in mind there are other fixed-income investments that could work just as well or better than CDs. Treasury bills (T-bills) are one option. They're backed by the U.S. government and earn a fixed rate. While these rates vary, recent T-bills have been offering around 4.5%. And the interest you earn on T-bills isn't subject to state taxes. CD interest is.
If you want more flexibility about when you withdraw your money, check out high-yield savings accounts. These offer rates similar to CDs, and they don't have any early withdrawal penalties. Learn more and see our list of the best savings accounts here.
There are many ways you can invest your money. It's important to select investments that fit your financial goals.
If you're investing to build a retirement nest egg, CDs probably aren't the best choice unless you're just a few years away from retirement. For that, and any other long-term goals, it's best to choose investments with more growth potential. But for growing money you'll need within the next few years, CDs are one of the better options.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.