4 Reasons CDs Are Not a Good Investment for 2025

Over the past year, certificates of deposit (CDs) have become a popular place to stash money. Depending on the bank and term you choose, you can currently get around 4% on the highest paying CDs. CDs also have fixed rates, so you can lock in your rate for the entire CD term.

Some people decide to invest in CDs because they are a safe option. But while CDs have their uses, they are not the best investment for a few reasons.

1. You won’t be able to access your money

With some investments, you can put in and take out money whenever you want. While it’s generally better to hold investments for the long term, if you want to sell some stocks and withdraw your money, you’re free to do so.

CDs don’t give you this flexibility. When you put money in a CD, you agree to keep it there until the maturity date. In return, you lock in a fixed interest rate for your money. If you need your money before your CD matures, you’ll likely pay an early withdrawal penalty.

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2. Rates have fallen

Unfortunately for new CD investors, rates are not as good as they were a few months ago. Earlier this year there were many CDs offering over 5%. A select few earned even more; The highest rate I saw was 9%. However, the Fed has cut its benchmark interest rate twice since then and may do so a third time before the end of the year.

Honestly, the best time to invest in CDs was mid-2024. Now that the rates are lower, they are not such an attractive option, especially when you compare them to other ways you can invest your money.

3. Other investments have much greater growth potential

The main benefit of investing in CDs is how reliable they are. You won’t have to worry about losing your deposit or your CD’s rate dropping after you open it. Both are important for a short-term investment.

If you’re a long-term investor, CDs won’t work very well. There are investments that provide much greater returns, such as stocks. The average annual return of the US stock market, represented by the S&P 500 index, over 50 years ago was approximately 10%. This is much better than the 4% you can get with a CD.

4. You pay taxes on interest

The IRS considers CD interest to be taxable income. Earning $500 in interest on CDs? This means an additional income of $500 that must be declared. If you’re in the 22% tax bracket, you’ll pay $110 in tax.

You won’t have this problem with investments that increase in value, including stocks and real estate. If you invest $10,000 in a stock and it increases in value to $11,000, you have a capital gain of $1,000. You’re only taxed on those profits when you sell. Plus, if you hold it for more than a year, you’ll pay long-term capital gains taxes, which are lower than income tax rates.

As an investor, being too conservative can cost you dearly. As safe as CDs are, their rates are not comparable to the rates you can get by investing in the stock market.

They can work well as a short-term investment, provided you know how long you can lock up your money. But if it’s money you may need whenever you want, find a high-yield savings account instead so you don’t have to worry about early withdrawal penalties.