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

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

1. You won’t have access to your money

With some investments, you can invest and withdraw money at any time. Although it is generally best to hold onto your investments for the long term, if you want to sell some stocks and get your money out, you are 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 exchange, you get a fixed interest rate for your money. If you need your money before your CD matures, you’ll likely pay an early withdrawal penalty.

Our picks for the best high-yield savings accounts of 2024

American Express® High Yield Savings APY 4.00% Pricing information Annual percentage yield of 4.00% as of November 25, 2024. Conditions apply. Member of the FDIC.	APY 4.00% Pricing information Annual percentage yield of 4.00% as of November 25, 2024. Conditions apply.	Min. earn $0
Capital One 360 ​​Performance Savings APY 3.90% Pricing information Check the Capital One website for the most up-to-date pricing. The advertised annual percentage yield (APY) is variable and accurate as of November 21, 2024. Rates are subject to change at any time before or after account opening. Member of the FDIC.	APY 3.90% Pricing information Check the Capital One website for the most up-to-date pricing. The advertised annual percentage yield (APY) is variable and accurate as of November 21, 2024. Rates are subject to change at any time before or after account opening.	Min. earn $0
Western Alliance Bank High Yield Savings Premier APY 4.46% Pricing information Annual Percentage Yield (APY) is accurate as of November 7, 2024 and is subject to change at the Bank’s discretion. Refer to the product website for the latest APY rate. The minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. earn $500 to open, $0.01 for maximum APY Member of the FDIC.	APY 4.46% Pricing information Annual Percentage Yield (APY) is accurate as of November 7, 2024 and is subject to change at the Bank’s discretion. Refer to the product website for the latest APY rate. The minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	Min. earn $500 to open, $0.01 for maximum APY

Want the security and high rates of a CD, without early withdrawal penalties? Consider the Discover® Online Savings Account. This is a high-yield savings account with a 3.90% APY and a big bonus for new customers. Click here to learn more and open an account today.

2. Rates have fallen

Unfortunately for new CD investors, rates aren’t as good as they were a few months ago. Earlier this year, many CDs were offering more than 5%. A select few earned even more, the highest I saw being 9%. But the Fed has since cut its benchmark interest rate twice, and it is possible it will do so a third time before the end of the year.

To be honest, the best time to invest in CDs was around the middle of 2024. Now that rates are lower, they are no longer as attractive an option, especially when you compare them to other ways of investing your money.

3. Other investments have much greater growth potential

The main advantage of investing in CDs is their reliability. You won’t have to worry about losing the money you deposit or seeing the rate on your CD decrease after you open it. Both of these are important for a short-term investment.

If you’re a long-term investor, CDs won’t work as well. There are investments that offer much greater returns, such as stocks. The U.S. stock market, represented by the S&P 500 Index, has an average annual return of approximately 10% over 50 years. That’s much better than the 4% you could get with a CD.

4. You will pay taxes on the interest

The IRS considers interest on CDs to be taxable income. Earn $500 in interest on CDs? This represents $500 in additional income to report. If you are in the 22% tax bracket, you will pay $110 in taxes.

With investments that increase in value, including stocks and real estate, you won’t have this problem. If you invest $10,000 in a stock and its value increases to $11,000, you realize $1,000 in capital gains. You are only taxed on these gains 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.

Being too conservative as an investor can cost you. As safe as CDs are, their rates simply don’t compare to what you could get investing in the stock market.

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