I’m a Financial Planner: This Is the Best CD Account To Open Now

Interest rates are at 40-year highs — which means fixed income is cool again. One of the safest (and easiest) ways to earn good money from your cash is opening a certificate of deposit (CD) .

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But what type of CD should you open — and what is a good approach for investing in this high-interest environment — especially since rates might drop in the future?

We asked a financial planner his thoughts on which CDs are best right now :

What is a Certificate of Deposit (CD)?

Before we get into what the best CDs are right now — let’s define what a CD is.

A Certificate of Deposit (CD) is a timed savings account that locks up your money for a specific amount of time — and pays the highest interest rate in return. There are several types of CDs — but the most common are standard CDs have term lengths ranging from one month to five years (or more).

The big caveat for most CDs is that you will be penalized for removing your money before the term ends. This means you should only lock up funds you won’t need access to for the duration of the CD term.

CDs are a great way to earn interest on cash you aren’t using — and can be used in strategic ways as part of your overall financial plan. CDs are also popular once you retire a low-risk fixed-income source that earns interest but doesn’t fluctuate in value like stocks or bonds.

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The Best CDs to Open Right Now (According to Financial Planners)

There are several types of CDs you can choose from, including fixed-rate CDs, variable-rate CDs, no-penalty CDs and more. Each type of CD has pros and cons — depending on how you want to use them.

We asked Zack Swad, president of Swad Wealth Management, LLC , what he’s seeing in the markets — and what CD accounts he recommends.

Fixed-Rate CDs

Fixed-rate CDs are the most common type of CD — and as indicated by the name — they pay out a fixed interest rate over the entire term.

Here’s what Swad recommends when it comes to choosing a fixed-rate CD:

• Best For: Individuals seeking a stable and predictable return on investment.
• Advantages: Fixed-rate CDs offer a guaranteed interest rate for the entire term, protecting against future rate declines.
• Risks: Early withdrawal penalties can be substantial, which may limit liquidity.

Variable-Rate CDs

Variable rate CDs offer interest rates that vary with the Fed Funds rate set by the Federal Reserve. These CDs are designed to take advantage of rising rates to increase your rate over time. Here’s how Swad approaches variable rate CDs”

• Best For: Investors who anticipate rising interest rates.
• Advantages: The interest rate on these CDs can increase if market rates go up, offering the potential for higher returns.
• Risks: If rates fall, so will your returns. Additionally, they may still have early withdrawal penalties.

Bump-Up CDs

Another flexible CD option is the bump-up CD. Similar to variable-rate CDs, bump-up CDs allow you to increase your CD rate during your term. But your rate will never decrease — meaning there’s no downside risk compared to variable-rate CDs.

Here’s how Swad recommends using bump-up CDs:

• Best For: Those who want protection against rising rates without committing to variable rates.
• Advantages: You can “bump up” the rate to the current higher rate once during the term.
• Risks: Typically, these CDs start with a slightly lower rate compared to fixed-rate CDs. Early withdrawal penalties may apply. There may be stipulations on when you can request the bump up and it may be subject to the bank’s approval.

No-Penalty CDs

No-penalty CDs let you withdraw your CD funds before the term is up. But they usually pay lower rates.

Here’s how Swad recommends using no-penalty CDs in your financial plan:

• Best For: Individuals needing flexibility with their investments.
• Advantages: These CDs allow you to withdraw your money before the term ends without facing a penalty, providing greater liquidity.
• Risks: They often come with lower interest rates compared to other CD types.

Jumbo CDs

Jumbo CDs are usually like fixed-rate CDs — but for much larger deposits. They can pay better returns than a normal CD but require locking up a huge sum of money.

Here’s what Swad thinks about Jumbo CDs and what you should watch out for:

• Best For: Those with substantial amounts to invest and seeking higher returns.
• Advantages: They typically offer higher interest rates due to the larger initial deposit requirement.
• Risks: The higher the deposit, the greater the impact of early withdrawal penalties.

Risks of CD Investments

There are several types of CDs to choose from, and each CD can work well in certain circumstances. But while CDs are seen as a safe investment — there are risks to be aware of.

Here are the three biggest risks Swad believes you need to be aware of:

• Early Withdrawal Penalties: Most CDs impose penalties for early withdrawal, which can erode your returns.
• Inflation Risk: If the inflation rate exceeds the interest rate on your CD, the real value of your investment may decline.
• Opportunity Cost: Locking funds in a CD means you may miss out on other investment opportunities that offer higher returns.

Should You Open A CD Right Now?

With many types of CDs available, there might be one that fits your financial plan. And with the Fed set to potentially lower rates this year and next–it might be prudent to consider opening a CD sooner rather than later. Here are Swad’s thoughts on this:

“Lastly, there are questions about whether or not you should lock in rates now due to the Fed potentially changing rates,” Swad said. “I recommend that people invest their money according to their situation and needs, not based on market predictions, which are almost impossible to time. Right now, interest rates do appear attractive but that does not mean they can’t go even higher so it’s not a game I like to play with my clients.”

This article originally appeared on GOBankingRates.com : I’m a Financial Planner: This Is the Best CD Account To Open Now