Will CDs still be worth it if rates drop?

Inflation has come down quite a bit over the last year or so — dropping from a peak of over 9% to the 3.4% it is now. And with the Federal Reserve's 2% goal finally within sights, the central bank has opted to keep its benchmark interest rate — 5.25% to 5.50% — steady at the last few meetings.

It might not be that way for long, though. The Fed has hinted that three potential rate cuts are on the horizon for this year, and according to the CME Group's FedWatch Tool, those could come at the bank's March or May meeting.

When that does happen, interest rates on certificates of deposit (CDs) will fall, too. This begs the question: Will CDs still be a smart place for your money in 2024? Or are you better off putting cash elsewhere when rates drop? 

Start exploring your CD options online now to see how much more you could be earning on your money.

Will CD still be worth it if rates drop?

The answer to this question varies, according to some experts we spoke to. Here's when it may (and may not) be worth it.

Yes, if you want a low-risk investment with a guaranteed return

CDs will always be a smart choice if you want a guaranteed return on your money without much risk. While the returns might be lower than the stock market or other investments, those come with the risk of potential loss. CDs, on the other hand, deliver guaranteed earnings as long as you leave your cash untouched until the account reaches maturity.

Plus, "They often offer higher interest rates than traditional savings accounts," says Holley G. Cary, vice president and senior financial planner at First Horizon Advisors in Memphis, Tennessee.

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Yes, if you're going to open one soon

If you're willing to open your CD soon, then it could definitely be a smart idea because, as Cary explains, "The fixed maturities that CDs offer can be used as a way to lock in those higher interest rates. You could take advantage of the high-interest-rate environment left from 2023 as inflation continues to decline in 2024."

The sooner, the better, too, as the Fed could begin rate cuts as soon as January 31 (its next meeting). If this becomes the case, you'd likely want a CD with a longer maturity period, as it would guarantee today's higher rates for an extended period of time.

"The market is expecting interest rates to fall in the medium term, so it may make sense to consider longer-term CDs now," says John Blizzard, president of Seattle Bank and founder of CD Valet. 

Yes, if you have time-sensitive goals you're saving for

CDs will also be a wise idea if you're looking to save up for specific, time-tied goals. This could vary from paying for college tuition to a wedding or even a vacation. To effectively do so, consider opening CDs with different maturity dates. 

A nice perk: This approach — which some call a CD ladder— also gives you more options down the road.

"You will still have your liquidity but maintain an average CD rate that remains higher, given that you have started purchasing longer-term CDs too," says Steven Conners, founder and president of Conners Wealth Management in Scottsdale, Arizona. "If you ladder or have CDs maturing at different maturity dates, it will provide for more outcomes."

No, if you want the highest possible long-term returns

If you're looking for huge long-term earnings on your money, CDs likely aren't the most effective way to achieve them. The rate of returns can be significant but not as high as other, riskier alternative investments. If this is the ultimate goal, then stocks, bonds and even real estate may be better options to investigate.

There are other options, too

CDs aren't your only option if you want to grow your savings. High-yield savings accounts are also offering high rates these days, as are money market accounts. 

The main thing, Cary says, is to "go back to your goals. What is the purpose of the money you are saving? And what is the best choice of account type to be suitable with your goals? Having a comprehensive financial plan in place makes the decisions much easier, especially when faced with changing market conditions."