Considering a CD for 2025? Here's what experts say to know.
Certificates of deposit (CD) accounts have long been a sound investment for those who want guaranteed returns with minimal risk. Unlike variable rate savings accounts, CDs lock in your yields for the duration of the CD term; however, the tradeoff is less liquidity than a savings account offers, as you must keep your money invested until your CD matures to avoid penalties.
The post-pandemic era made getting a good CD rate simpler as rates on CDs soared to highs not seen in decades. As the Federal Reserve raised the benchmark interest rate, the definition of a good CD yield changed, with rates above 5.00% becoming the norm In this favorable environment, investors rushed in.
Now, however, today's CD rates have fallen from their recent peaks, and there's reason to believe they may decline further as the Fed signals more rate cuts are on the horizon. This has many investors wondering if CDs will still be worth buying in 2025. We've checked in with some experts to answer that question.
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What experts say to know about CDs in 2025
While rates are no longer as competitive as they were, CDs are still offering fairly generous yields that may earn them a place in your portfolio if you're looking for a conservative investment option.
"When considering investments in 2025, CDs can be a good choice, depending on your risk tolerance," explains Nate Towers, a chartered retirement planning counselor and director and financial advisor at Five Pathways Financial. "While CD rates are likely to decrease over the next two to four quarters and into 2025, they will probably remain higher than the average rates seen over the last decade."
After you've opened your CD and locked in these still-competitive rates, you don't need to worry that your ROI will decline over time, which is important as the Federal Reserve is in a rate-cutting cycle.
"Current downward pressure on short-term rates from the Federal Reserve and sustained elevated long-term rates are likely to enhance the appeal of CDs, especially longer-term options," says Mike Crossley, vice president of treasury processing at America First Credit Union.
Brittany Pedersen, Director of Deposit and Payment Operations at Georgia's Own Credit Union, also notes that CDs are currently "offering higher interest rates than you are seeing with savings or money market accounts, as most of those have been steadily dropping following multiple rate cuts by The Fed this fall."
With better rates than other FDIC-insured investments coupled with the option to keep those competitive rates for months or even years, it's clear CDs will still have a lot to offer in the new year.
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CD laddering can help reduce risk
While CDs are a low-risk investment, this doesn't mean they're risk-free. Interest rate risk should be considered before you open an account in 2025.
"Since CDs lock in your rate, you face the risk of missing out on higher rates in the future," warns Mike Laske, a wealth management advisor at Greenleaf Trust. "One way to hedge this risk is by laddering CDs, or purchasing CDs with different maturity dates so that you're not fully committed at one rate."
This approach is common and Towers says it's helped his clients optimize returns and ensure access to their money over time while giving them peace of mind. Of course, it's important to understand how CD laddering works before jumping in.
"CD laddering involves spreading deposits across multiple CDs with staggered maturity dates," explains Crossley. "For example, a three-year ladder might include a one-year CD, a two-year CD, and a three-year CD. As each CD matures, the proceeds can be reinvested into a new three-year term if the funds aren't needed elsewhere."
CD laddering isn't a new strategy, but Crossley said 2025 may be an especially good time to implement it. "This strategy is particularly advantageous in the current economic environment," he says. "With the yield curve flattening and potential normalization on the horizon, CD laddering allows investors to capture competitive long-term yields while maintaining short-term liquidity. This balanced approach offers a combination of higher returns and flexibility, positioning depositors to navigate the evolving interest rate landscape in 2025."
Of course, there are still some downsides to laddering. "The flip side of the coin is that if rates drop later on in 2025 and you have CDs renewing, you could end up having CDs renew into lower rates than if they had invested them into longer-term CDs," warns Pedersen. "Like most choices when investing, there are pros and cons to every strategy."
Ultimately, a lot will come down to your individual goals. "CD laddering is a good strategy if you prioritize safety and guaranteed returns, need periodic access to portions of your investment, and want to hedge against fluctuating interest rates," Laske says. "It might not be the best option if you have a higher risk tolerance and target greater returns from equities, or if you expect to need all the funds within a short period."
Kelly Gilbert of EFG Financial also notes that equities can sometimes be a better bet. "Interest rates won't be going up for the near future, and CDs aren't known for high yields," he says. "Combine that with a strong stock market that's producing over 10% gains for even the most conservative of investors. If I had to put money away for 12 months and wanted to be safe about it, I would invest in a defined outcome buffered ETF that follows an Index like SPX. That could provide a 15% upside with a 10% downside buffer."
Both your risk tolerance and investing timeline will shape your choice about what's optimal for 2025 will depend on your specific situation. After all, as Domenick D'Andrea, AIF, CRC, CPFA, financial advisor, and Co-Founder of DanDarah Wealth Management pointed out, "CDs are always a good investment when used for the right reasons."
