Will a CD be better than a savings account in 2024? Here's what experts think.

Choosing a CD over a high-yield savings account can be a smart move for most savers right now. / Credit: Getty Images

Prior to its recent pause, the Federal Reserve had been raising interest rates for more than a year in hopes of squashing inflation. While that resulted in rates that aren’t great if you’re borrowing money, it’s another story for savers.

That’s because rates on certificates of deposit (CDs) and high-yield savings accounts have also gone up due to the Fed’s actions. This, in turn, has allowed consumers to earn more off the cash they have stowed away.

Whether those high rates will continue in 2024 remains to be seen, but one thing experts do agree on? CDs may be your best bet if you want to the shot at big returns. Here’s why.

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Will a CD be better than a savings account in 2024? Here’s what experts think.

There are a few reasons why experts suggest considering CDs over savings accounts right now, including:

CDs rates are usually better than high-yield savings rates

One reason CDs could be the better option is that these accounts typically offer higher rates than you’ll get on a savings account — even a high-yield one.

“CDs typically have higher rates of return than savings accounts because you are locked in for a certain term and subject to a penalty if you withdraw your funds early,” says Brittany Pederson, director of deposit and payment operations at Georgia’s Own Credit Union. “With a high-yield savings account, getting a lower rate is essentially paying a premium for the right to move assets more freely in and out of the account.”

There are, of course, exceptions, and in some cases, certain CDs may offer higher rates than a high-yield savings account will. This why it’s important to shop around for your account and compare your options — no matter what type of savings product you opt for.

Find out how today’s best CDs could help you meet your financial goals.

CDs let you lock in rates for longer

Another reason you may want to open a CD is that they guarantee your interest rate for an extended period of time — sometimes for as long as five to 10 years.

Should the Fed change its strategy and drop interest rates next year, having a CD will ensure you still get today’s high rates for the long haul, regardless of how far rates fall in the future.

“High-yield savings accounts will adapt to any changes in interest rates quickly,” says Shinobu Hindert, a certified financial planner and author of Investing is Your Superpower. “Buying a CD that locks an investor into a specified rate over a specific period of time will ensure they receive that rate regardless of what interest rates do before the CD matures.”

While there’s no guarantee interest rates will fall next year, many experts predict they will — at least slightly — by the end of the year. According to the CME Group FedWatch Tool, there’s currently about a 53% probability the Fed cuts rates at its March meeting and an even bigger chance by its May one.

“Now that the Consumer Price Index is moving closer to the Fed’s 2% target, the next logical step would be to cut rates,” says Eric Presogna, a certified financial planner and founder of One-up Financial. “Should [Fed Chair Jerome] Powell move as quickly with rate cuts as he did with rate hikes, I’d expect rates to remain at or near their current levels for most of 2024 and decline in the latter half of next year to coincide with a Fed cut.”

You can ladder your CD timelines to take advantage of rate increases

The Fed is expected to be done with its rate hikes for this cycle, but there’s no guarantee that’s the case. Depending on where inflation goes and how consumer spending trends, there could be room for further rate increases down the road. This could mean there’s a chance CD rates go higher.

If you had all your money in a single CD, you’d be unable to take advantage of those higher rates. If you opted for a CD ladder, though — which involves buying multiple CDs of differing lengths — you might be able to.

“You could consider a technique called laddering, which has you open several CDs of different durations at the same time — say a six-month, nine-month, and a 12-month — so that every three months, some portion of your locked-in savings is available,” says Jennifer White, senior director of banking and payments intelligence at JD Power.

When you might want a savings account instead

CDs will likely be a smart move next year, but they’re not right for everyone. Because they come with a penalty if you withdraw funds before their maturity date, they’re not a great choice if you need easy access to cash — or you lack a solid emergency fund.

“You need to make sure you have enough cash readily available outside the CD so if an unexpected expense comes up within the next 12 months, you don’t need to sell your CD and pay any penalties associated,” Hindbert says.

The bottom line

Whichever type of account you use, experts say acting soon is key. In fact, White says “everyone” should be considering a CD or high-yield savings account for their extra cash right now.

“If you have traditional low-interest earning savings that you can shift into any form of account earning higher interest rates today you should be making that move,” White says. “Not doing so is leaving money on the table, even if your savings is — in your eyes — meager.”