Many CDs are paying way more than they used to (think upwards of 4%-4.5%), but should you take one out?

“If you’re shopping around for the top-yielding CDs, you’re seeing yields of 4% to 4.75%, depending on maturity, that are available nationwide. These are levels unseen since the great financial crisis in 2008,” says Greg McBride, chief financial analyst at Bankrate. You can see some of the highest CD rates you may get now here.

While earning that interest rate may sound appealing, it’s important to note that CDs effectively tie your money up for anywhere from a few months to several years, and withdrawing cash from one before it matures can result in a cumbersome penalty fee. That said, they’re a safer place to park money, which can be appealing especially in turbulent times like these. Here’s what you need to know about CDs.

The latest rates on CDs

Some of the CDs you’ll find today have the best yields in nearly 15 years. Others, not so much (see below). That means that if you’re not shopping around, you may be looking at a yield that isn’t all that different from pre-pandemic levels.

“The reason for the disparity is that most banks, especially bigger banks, have been dragging their feet about raising CD yields in a meaningful way but the most competitive banks and credit unions have kept pace as the Fed continually raised benchmark interest rates,” says McBride. 

Below are the latest average rates on CDs, according to data from Bankrate released on February 22, and then we chat with experts about what you should know about CDs and when they’re right, and not right, for you. 

Other things to know about CDs

If you have a cash need at a specific time in the future, or you’re looking to generate income in retirement, or you need a way to diversify a broader investment portfolio, a CD might be the right move for you. While the average rates on CDs aren’t anything to write home about, plenty of banks are paying rates in the 4% range, with some as high as 5% on a 1-year CD. 

“Be sure to shop around for the best yielding CDs, get it directly from a federally insured bank or credit union and fully understand the penalties for early withdrawal,” says McBride. You can see some of the highest CD rates you may get now here.

Experts say you likely have a few buckets to consider when it comes to savings. You’ll need an emergency fund, which will contain 3-12 months of essential expenses that should be put somewhere safe and easily accessible, like a high-yield savings account. These are now paying more than they have in a decade, and you can see the best rates you may get now here.

Meanwhile, for other goals like buying a home or taking a fabulous vacation in a few years, you may want to think about a CD. “Cash needed in 2 to 5 years could be invested in something like a CD or Treasuries that could provide more yield than a savings account but maintain relative safety,” says certified financial planner Zack Hhubbard at Greenspring Advisors.

Risk-averse investors or anyone only looking to invest money for the short-term may want to consider CDs, as they can be useful in terms of protecting principal, while still allowing for a little bit of interest to be earned. But it’s important to keep in mind that putting money into a CD really only makes sense if you’re able to keep it there until it reaches maturity, which is typically between a few months and five years — otherwise, you’ll be on the hook for a hefty penalty. Experts also say that CDs are often one of the best savings tactics if you’re saving with a specific goal in mind because you’re guaranteed to earn a return. 

For those with larger cash savings accounts who want to stay conservative, but wouldn’t mind earning a little more interest, Mamie Wheaton, financial planner with LearnLux, says it’s worth considering investing a portion in CDs using a specific struture. “Consider a CD ladder, where different amounts come due at different times,” says Wheaton.

It’s important to understand the terms of the deposit and to make sure you’re okay with not being able to touch your money for whatever fixed time period you’ve agreed upon. It’s also wise to familiarize yourself with the early withdrawal penalty fee in case you find yourself needing to withdraw funds before the CD matures.