As we approach 2025, many are predicting that certificate of deposit (CD) interest rates will fall from their peak of around 5.00%. Some see this as a sign that it’s time to buy: Open a CD now and you can lock in a high interest rate that could last for months or even years.
While there is some truth in this, I personally don’t find CDs to be a very attractive option. Here are three places I like to invest my money.
1. High-yield savings accounts
High-yield savings accounts are a great choice for emergency funds or savings you plan to use within the next 3 to 5 years. Many of these accounts offer rates close to the APYs currently offered by the top CDs, and they don’t have the same restrictions on when you can access your funds as CDs do.
The trade-off is that the interest rate won’t be fixed like CD rates. Savings account interest rates will very likely start to decline in late 2024 or well into 2025, which will put a strain on your monthly interest payments, perhaps quite a bit. During the COVID-19 pandemic, when the Federal Reserve cut interest rates, interest rates on high-yield savings accounts bottomed out at around 0.30%.
Our picks for the best high-yield savings accounts for 2024
Capital One 360 Performance Savings
Annual Interest
4.25%
Evaluation Information Circle with the letter I inside.
For the most current interest rates, visit the Capital One website. Advertised Annual Percentage Yield (APY) is subject to change and is accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.
Member FDIC.
Annual Interest
4.25%
Evaluation Information Circle with the letter I inside.
For the most current interest rates, visit the Capital One website. Advertised Annual Percentage Yield (APY) is subject to change and is accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.
Minimum winnings
$0
American Express® High Yield Savings
Annual Interest
4.25%
Evaluation Information Circle with the letter I inside.
As of August 26, 2024, the annual interest rate is 4.25%.
Member FDIC.
Annual Interest
4.25%
Evaluation Information Circle with the letter I inside.
As of August 26, 2024, the annual interest rate is 4.25%.
Minimum winnings
1 dollar
UFB Portfolio Savings Account
Annual Interest
5.15%
Evaluation Information Circle with the letter I inside.
To continually get the best interest rates with UFB, you should keep an eye on interest rates. Banks open new accounts from time to time with higher interest rates. If you have an existing account, you should contact your bank and ask to be transferred to one of these new accounts.
Member FDIC.
Annual Interest
5.15%
Evaluation Information Circle with the letter I inside.
To continually get the best interest rates with UFB, you should keep an eye on interest rates. Banks open new accounts from time to time with higher interest rates. If you have an existing account, you should contact your bank and ask to be transferred to one of these new accounts.
Minimum winnings
$0
But even with these risks, I prefer to keep my money in an easy to access place, and while it’s nice to earn a little interest, it’s not worth really putting yourself in a bind when an emergency occurs and you suddenly need cash.
2. Retirement Accounts
I prefer to keep my long-term savings in a retirement account, where they are invested and allowed to grow in purchasing power over time. The stock market goes up and down, but investing allows you to grow your assets faster than the rate of inflation, something even the best CD rates typically can’t do.
Retirement accounts also offer valuable tax benefits. Tax-deferred accounts like traditional IRAs and 401(k)s give you an up-front tax deduction the year you contribute, but you pay tax on any withdrawals later. Roth IRAs require you to pay tax up front instead of withdrawing money tax-free in retirement.
These benefits can add up to big savings in the long run. But if you plan to use one of these accounts, be aware of the annual contribution limits. In 2024, you can only contribute up to $23,000 to a 401(k) and $7,000 to an IRA. Adults over 50 can contribute up to $30,500 and $8,000, respectively. If you exceed these limits, you’ll incur tax penalties.
3. Taxable Securities Accounts
I also have some savings in taxable brokerage accounts. These are investment accounts that don’t offer the special tax benefits of retirement accounts, but they are also less regulated. You can invest as much as you want and withdraw at any time. Retirement accounts, on the other hand, have contribution limits and penalties if you withdraw before age 59 1/2.
A taxable brokerage account is a great place to store savings that you don’t plan on using right away but don’t want to be tied up until retirement. Or, if you plan on retiring before age 59 1/2, you can rely on those funds until you’re old enough to access your retirement savings.
You can also use any combination of the above accounts. Think about which accounts make the most sense for you right now and then decide how much you want to deposit into each account each month going forward. After you’ve tested your plan for a few months, revisit it and see how things go. Adjust as needed until you find a solution that works for you.
