CD Rates Are Above 5%, but I'm Still Not Investing. Here's Why

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It can be hard to pass up a good deal, whether it's a free soda when you buy lunch at the local sandwich shop or a BOGO sale at your favorite clothing store. And certificates of deposit (CDs) are unquestionably a good deal right now. The best CD rates today are sitting around 5.00%, reaching recent record highs. Compare that to 0.16%, the average 12-month CD rate at the end of 2020 during the height of COVID-19, and you'll see just how sweet a deal snagging one of today's best CDs can be.

But despite these glowing annual percentage yields (APYs), I'm not planning on opening a CD. There are a couple of reasons why I've decided this savings vehicle isn't for me.

I value simplicity in my finances

Life is complicated. Take a moment to think about how many accounts you have open in the world, from bank accounts to streaming platforms, store loyalty memberships to medical office logins. If you wrote down a list of all your usernames and passwords, would it be dozens of lines long? Hundreds? It's one of the things that bugs me about modern life.

I like to streamline things where I can, and opening another account that I have to monitor doesn't feel worth it to me at this time. I already have savings and checking accounts, an emergency fund, a retirement account, and a taxable brokerage account, and I'm comfortable with the way my money is distributed among them. Sure, I could shuffle some of that money around and move it into a CD, or even build a CD ladder out of several CDs with differing term lengths, but I don't need to. Even with rates at or slightly above 5.00%, I'm happy with the returns I'm earning on my money where it is. In fact...

I can earn high returns elsewhere

There are few places where you can put your money and earn similar returns to what the best CDs are offering right now, but high-yield savings accounts have been a pretty excellent low-risk alternative in recent years. Like CDs, savings accounts are FDIC insured, meaning up to $250,000 per account will be covered in case of bank failure. And savings accounts rates have been gloriously high the past few years thanks to the same Federal Reserve interest rate moves that have led to high CD rates.

The money in my high-yield savings has grown significantly since I opened the account a few years ago, thanks to compound interest and high rates, and I've had the peace of mind knowing I can dip into it at any time if an emergency expense pops up. I wouldn't be able to say the same about a CD. And while savings account rates aren't locked in and can fluctuate at any moment, they've remained high for a few years, and I'm okay if they start to dip again soon since that's not the only place I keep my money.

I also regularly shift cash I know I won't need in the short term to my brokerage account. While investing can be somewhat unpredictable and comes with more risk than a CD or savings account, the long-term returns have consistently trended up. In fact, the average annual stock market return over the past 50 years is 10%. I'm not great at math, but I know 10% is twice as much as 5%, so I'm comfortable investing long-term cash in my brokerage account rather than a CD.

Do what's best for you

Take a look around here at The Ascent and you'll see plenty of well-reasoned arguments both for and against investing in CDs. It's clear there's no one right answer, no one-size-fits-all move. As long as you take a look at your own finances, make decisions you're comfortable with, and keep some amount of money in emergency savings, you should be able to set yourself up for a successful financial future, no matter which side of the CD fence you fall on.

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