A certificate of deposit (CD) is a type of savings account offered by credit unions and banks. Typically, these accounts have higher interest rates than either traditional or high-yield savings accounts (HYSAs). However, they also come with a few drawbacks.
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There are restrictions on when you can use the money in the account, as well as some potential fees to consider. In some cases, the yield might not be high enough to justify the limitations — or even necessarily as high as certain accounts.
Here’s why you might not want to open a CD right now, according to Brittany Pedersen, director of deposit and payment operations at Georgia’s Own Credit Union, and Brandon Stout, relationship advisor at Addition Financial Credit Union.
When you open a CD, you lose access to the funds deposited into that account for a set period of time. If you try to withdraw your money before the maturity date, you could get hit with a fee. Given this, CDs may not be the best option if you’re someone who needs quick access to your money.
“Opening a CD is not just about growing your funds, it’s a serious commitment to bettering your financial standing,” said Stout. “Never open a CD if you are not comfortable with leaving a certain amount of funds tied up until [the] maturity date. Closing a CD before its maturity can result in penalties that you will have to pay.”
Early withdrawal fees range by institution and CD. Accounts with longer maturity dates may come with higher fees, though this depends.
“The bottom line is this: If you have a set budget and need any residual income for bills or living expenses, [if you’re] looking to make a large purchase with the funds soon or if you have not established an emergency/rainy-day savings, do not open a CD,” Stout continued. “Invest responsibly!”
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Similarly, since your money is tied up in a CD, you won’t have easy access to it in case of emergencies. Most financial experts advise having between three and six months’ worth of expenses in an emergency fund to cover unforeseen expenses. If you don’t have that yet, it might be better to wait on investing in anything until you do.
“If you don’t have enough in savings to set some aside in a CD and still have a substantial emergency fund available, you could end up losing some of the funds in the CD due to an early withdrawal penalty,” said Pedersen.
This is a double whammy when you’re facing a financial crisis. Not only can it take some time to access your money — though admittedly, it might not be much time — but that penalty can lead to even greater financial hardship.
It’s not hard to see the appeal of opening a CD. They’re often touted as having a higher yield than traditional checking and savings accounts. And once you open an account, your rate is guaranteed.
That said, other accounts may have competitive rates, too. According to the FDIC, as of Feb. 18, 2025, the national rate cap on CDs ranges from 5.75% to 5.99%, depending on the term length. The rate cap on money market accounts, interest-bearing checking accounts and savings accounts is 5.08%.
While the rate cap is higher on CDs, not all banks will offer the most competitive rates. If you can find a better yield using a different account — ideally one that doesn’t tie up your funds — that might be the better option.
According to Experian, the average American household owed $105,056 in 2024. This includes all sorts of debt, including mortgages, home equity loans, auto loans, personal loans and credit card loans.
While you might be in a good place to open a CD if you have certain types of debt, you may want to wait if you owe a lot or have high-interest debts.
“You shouldn’t open a CD if you have high-interest debt,” said Pedersen. “If you have an outstanding loan with an interest rate higher than what you would make on the CD, you may be better off paying down the debt.”
Many major banks and credit unions are insured — either via the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). Both of these will generally cover up to $250,000 against the institution’s failure.
If you find a bank or credit union that offers CDs that aren’t insured, look elsewhere.
“I would not recommend investing funds into a financial institution that does not provide FDIC or NCUA insurance,” said Pedersen.
If you’re not concerned about leaving your money tied up or the possibility of early withdrawal penalties, there are some distinct advantages to opening a CD.
“If you have extra funds sitting in a low-rate savings or money market account, you could increase your interest income by investing in a CD,” said Pedersen. “Additionally, if you have other CDs that are maturing, it is a good time to reinvest those funds directly into high-rate CDs and continue to increase the dividends you are receiving.”
CDs are also a secure way to invest — provided they’re insured.
“It doesn’t matter if you’re a parent looking to expand your child’s college fund, or grandparents who want to ensure your family is financially secured for the future, CDs are a wonderful tool to help you navigate through the uncharted waters of the future,” said Stout.
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This article originally appeared on GOBankingRates.com: I’m a Banking Expert: 4 Reasons You Should Not Open a CD
