3 Reasons I've Never Opened a CD, Even With Rates Over 5%

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It's now or never for anyone who's on the fence about opening a certificate of deposit (CD). The best CDs are still paying excellent rates, with some offering over 5%. Those rates could drop within the next few weeks, because the Federal Reserve is expected to lower the federal funds rate.

CDs are useful if you want to lock in a high interest rate, but they also have a few drawbacks. If you're unsure whether you should get one, here's why I've chosen to avoid them.

1. It can be complicated to keep track of CD maturity dates

Some people are great at organizing their finances. They can keep track of lots of accounts, the perks they need to use on all their credit cards, and so on. Often, spreadsheets are involved. For these people, it's easy to plan ahead with CDs and make a note of each CD's maturity date. That's the end of the CD's term, when you can withdraw your money without paying a penalty.

I'm not one of those people. I don't like spending too much time on my finances, and I prefer to keep it simple with my accounts. I'm not interested in tracking when my CDs mature, and then deciding what I'll do with that money going forward.

If keeping track of one or more CDs would be no problem for you, then they could be worth using. If you'd rather not do that, you're better off sticking to a savings account.

2. I'm earning a similar rate from my savings account

You don't need to open a CD to earn a big return on your savings. There are also high-yield savings accounts available with online banks, and these offer rates in line with those of CDs. Many of them earn APYs of over 4%, and some earn over 5%.

I have a high-yield savings account, so I'm already earning quite a bit back. The downside is that my account has a variable rate that will likely decrease if rates drop. CDs have fixed rates, which means you're guaranteed that rate for the entire CD term.

That's the biggest advantage of opening a CD. But if you decide to stick to a savings account, just make sure it's a high-yield savings account. The savings accounts at most big banks have lackluster rates -- some earn as little as 0.01%.

3. I like being able to access my money whenever I want

When you put your money in a CD, you need to wait until the end of the term to withdraw it. If you make a withdrawal before then, you'll be charged an early withdrawal penalty. The amount varies depending on the CD issuer and length, but it's normally a portion of the interest you earned. That wipes out the benefit of getting a CD in the first place.

I like having access to my savings whenever I want. That's more important to me than getting the highest possible interest rate. If you're not comfortable with committing your money to a CD, a high-yield savings account is a much more flexible option.

None of this means that CDs are a bad financial product. They can be very useful if they fit your financial goals. But it's helpful to recognize when a CD isn't the best fit for you, so you don't open one just because you feel as if you should.

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