3 Smarter Things to Do With Your Money This September Than Opening a CD

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There's a reason certificates of deposit (CDs) have been such a popular savings option lately. CD rates are still sitting near record highs, but that may not be the case for much longer. Once the Federal Reserve begins cutting the federal funds rate, banks will likely follow suit and CD rates won't be as generous. So you may have heard that now's the time to open a CD -- before you end up stuck with a lower rate.

Opening a CD this September isn't necessarily a poor choice. But it may not be the best decision for you -- not when you could go one of these routes instead.

1. Put your cash into a savings account

The nice thing about CDs is that they let you lock in a guaranteed interest rate on your money. With a savings account , your interest rate is not set in stone. So once the Fed starts its rate cuts, your savings might start to pay less.

But there's a big benefit to sticking with a savings account: the flexibility to take a withdrawal whenever you want without risking a penalty. With CDs, there's generally a fee when you tap a CD before its maturity date. And that's important right now.

First of all, you never know when an emergency expense might arise, like a home or car repair, so it's a good thing to leave yourself with access to money for unplanned bills. On top of that, a lot of people are worried about the state of the economy.

August's jobs report was better than July's, but the number of new jobs added last month fell short of economists' expectations. And whenever there's an upcoming election, there tends to be a degree of economic uncertainty to begin with. While there's no need to sound a recession alarm anytime soon, it's also not a bad idea to keep more cash in a savings account -- even if it means earning a bit less interest than with a CD.

2. Invest in a brokerage account

You may like the idea of earning a 5% return on your money in a CD. But if you invest your money in a brokerage account , you might enjoy a return that's twice as large. Over the past 50 years, the stock market has delivered an average annual 10% return, accounting for good years and bad.

If you're not sure what you want to do with your money, a short-term CD of 12 months or less could be a better bet. But if you're willing to invest your money on a long-term basis, then a portfolio of stocks is a better bet for maximum returns. And if you're not sure how to choose stocks for your portfolio, investing in an S&P 500 ETF, or exchange-traded fund, is a good alternative.

3. Start an IRA

The sooner you begin saving and investing for retirement, the more your money is likely to grow. So while you could invest your money in a brokerage account this month, an individual retirement account (IRA) offers one big benefit: Your contributions can serve as a tax break.

The maximum amount you can put into an IRA in 2024 is $7,000 if you're under age 50 and $8,000 if you're 50 or older. These limits can change from year to year, though.

But for now, let's say you're thinking of putting $3,000 into a CD, only you pivot to an IRA instead. That means the IRS won't tax you on $3,000 of your income. If you fall into the 22% tax bracket, that contribution shaves $660 off of this year's IRS bill.

You may be tempted by today's strong CD rates, and that's understandable. But if you dig deeper, you may come to the conclusion that a savings account, brokerage account, or IRA is a better option.

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