Many short-term certificates of deposit are offering savings rates over 5.00% -- but experts don’t think you should lock in a CD rate yet. Instead, they’re recommending high-yield savings accounts, which also boast high interest rates while offering better flexibility.
“Short-term CDs, like all financial products, have their time and place,” said Andrew Latham, certified financial planner and managing editor of Supermoney.com. “At the moment, I don’t think short-term CDs are worth it because you can find the same rates or higher with high-yield savings accounts.”
For the past few months, the average high-yield savings account annual percentage yield has increased weekly, based on the banks we track at CNET. And unlike most CDs, money stored in an HYSA can see small gains if rates continue to go up. While this also means your HYSA APY can decrease if rates drop, experts don’t expect savings rates to go down significantly anytime soon.
“Unless there’s a substantial difference in interest rates, the liquidity and flexibility of an HYSA make them the better choice,” said Latham.
Here’s where CD and savings rates stand this week and why experts don’t think it’s worth it to commit to a short-term CD right now.
Savings and CD rates are changing rapidly across banks and accounts. Experts recommend comparing rates before opening an account to get the best APY possible. Enter your information below to get CNET’s partners’ best rate for your area.
One-year CD rates increased this week
Shorter-term CDs, which include one-year CD terms and lower, moved in various directions this week. Two-, three- and five-year CDs remain unchanged, based on the banks we track at CNET.
One-year and 18-month CD rates saw gains this week, with average APYs inching up to 5.14% and 4.88%, respectively. But nine-month CD rates dipped slightly to an average APY of 4.88%, while six-month CD rates stayed the same at 4.71%.
Some of the best short-term CDs (one year or less) still offer APYs over 5.00%, with some as high as 5.50%. But it’s important to note APYs represent what you’ll earn in a year, so shorter-term CDs will earn slightly less than the full APY.
| Term | 6-month | 1-year | 3-year | 5-year |
| Average APY | 4.71% | 5.14% | 4.24% | 4.02% |
High-yield savings accounts continue to increase slightly
The average high-yield savings account APY has increased gradually each week for the past several months, based on the banks we track at CNET. This week, the average HYSA APY is 4.90%, with many banks offering 5.00% or more. Only two banks increased rates this week: UFB Direct and Bread Savings, boosting rates to 5.25% and 5.05%, respectively.
Why are short-term CD rates high right now?
CD rates are higher than they’ve been in recent years in large part due to the Federal Reserve raising the federal funds rate to lower runaway inflation. When the federal funds rate rises, banks often follow suit, increasing interest rates on consumer products, from loans and credit cards to savings accounts.
Generally, longer-term CDs -- those over one-year -- have higher APYs than shorter-terms, with three- and five-year terms often seeing the highest APYs. But right now, short-term CDs like six-month, nine-month and one-year CDs are earning higher interest rates than many longer-term CDs, a phenomenon known as an inverted yield curve.
An inverted yield curve typically indicates that investors anticipate a recession according to Holmes Osborne, a certified financial advisor at Osborne Global Investors. Once the Fed begins to lower rates, this curve will course-correct, and we’ll see short-term CD rates start to dip below long-term rates.
Experts advise an HYSA over a short-term CD right now
Though some of the best six-month CDs are offering APYs over 5.00%, and HYSA rates are slightly lower than certain short-term CDs, choosing between the two comes down to your financial goals, liquidity needs and risk tolerance, says Louis J. Czerwinski, president and CEO of Allegiant Wealth Management.
Experts agree. Locking in a six-month CD right now may come at a disadvantage over a high-yield savings account because the Fed may continue to raise rates in the next six months, said Kris Maksimovich, a certified financial advisor at Global Wealth Advisors.
Unless the Fed indicates it’s close to lowering rates, Maksimovich recommends an HYSA over a short-term CD because you’ll have easier access to your cash and a variable interest rate that could continue to rise.
And even if short-term CD rates surpass HYSA rates in the coming months, you likely won’t see huge gains in interest unless you’re depositing a large sum of money, said Amy Braun-Bostich, a certified financial planner and CEO of Braun-Bostich & Associates.
When you compare a HYSA that pays 4.90%, for example, you could earn $2,450 in interest over six months on a $100,000 deposit, said Braun-Bostich (assuming rates remain the same). Compare that to a six-month CD that pays $5.25%, and you could earn $2,625 -- $175 more, she said.
But this comparison looks different when you invest a lower amount like $10,000. Then, the difference between the two options is only $17, assuming rates do not change during that period, added Braun-Bostich.
Another upside to a high-yield savings account over a short-term CD is that you can continue to add to your savings while earning a competitive rate. Most CDs only let you fund your account once, so you’ll need to have your deposit saved before opening one.
Planning your next savings move
Unless you have tens of thousands in savings, a high-yield savings account is the best place to grow your money right now, according to financial experts. A HYSA is a great place to build your emergency fund or set up a specific savings goal, like a sinking fund. Just look for a high-yield savings account that’s insured by the Federal Deposit Insurance Corporation or National Credit Union Administration, make sure you understand how to deposit and access your funds, and watch out for any monthly withdrawal limits.