Issues with lingering inflation have forced the Federal Reserve to keep interest rates high overall for the last couple of years. That has been a good thing for savers, as it has resulted in increased earning potential on the money deposited into interest-bearing accounts. 

At one point, some savings accounts and certificates deposit (CDs) were even offering rates as high as 6% (or more). But things have shifted lately, and after the late 2024 rate cut by the Fed, rates on savings products have begun to wane. 

Does that make savings products like CDs a bad idea, though? Not necessarily, experts say — but it depends, in large part, on your finances and goals. Here’s what to know about whether you should open a CD or invest in stocks now.

Find out how much you could earn by opening a CD account today.

Should you open a CD or invest in stocks? Savings experts weigh in.

Are you deciding whether to put your cash into a CD or invest it into the stock market to make potentially bigger gains? If so, pros say to consider the following before making a decision:

What are you using the money for?

The first thing to consider when making this decision is why you need the money and when you need it. Is it to fund a specific goal, like a wedding, vacation or retirement in a few years? Or are you simply looking to maximize returns on the money you have sitting stagnant?

If you’re saving for a specific goal, particularly a short-term one, CDs are often the better choice, experts say, as these accounts give you a guaranteed rate of return so long as you leave the money untouched until the CD’s maturity date. They can come in terms as short as one month up to 10 years, depending on your bank.

“The rates are currently staying higher on shorter-term CDs, which is a pro for consumers looking to receive a great rate without having to block access to their funds for a longer period of time,” says Sarah Wicker, consumer market loan and deposit account manager at Georgia’s Own Credit Union.

The stock market, however, offers more growth potential, experts say. This makes stocks a good option if you’re a few decades away from retirement or have time to weather some ups and downs before you actually need the cash.

“The average return of stocks on the New York Stock Exchange over the last 50 years has been 10%, which is why stocks are attractive investment options for long periods of time,” says Eric Elkins, CEO of Double E Financial Solutions. “Stocks have achieved higher returns vs. inflation over the last 50 years more than 70% of the time.”

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What sort of access do you need?

You should also think about what kind of liquidity you’ll need along the way. If you need to be able to pull out cash in a pinch, a CD may not be the best bet, as you might owe early withdrawal penalties if you touch the funds before maturity. And, while some banks offer CDs without these charges, there’s usually a tradeoff: lower interest rates.

Stocks, on the other hand, are liquid investments. If you hit an emergency expense you don’t have the cash to cover, you could presumably sell the stocks and use the sale proceeds to pay for the expense. 

“If you need access to your money, you can usually get it quickly,” Elkins says.

Just be aware that you may or may not get what you originally paid for the stock. It all depends on current market conditions at the time you sell.

How much risk can you take on?

Finally, think about your risk tolerance. While investing in the stock market offers more potential for profits, it also comes with a lot more risk. Case in point: The S&P 500 fell 8%, while the Nasdaq dropped 10% earlier this year.

“You need to ask yourself, what risk are you willing to take,” Elkins says. “CDs are like someone who drives no faster than 35 miles an hour and doesn’t exceed the speed limit. It might take them longer to get to where they are going, but they have a high probability they will arrive safe and sound. Stocks might drive at 35 miles an hour or speed up to 150 miles an hour. You have a higher probability to get to your destination faster, but you might hit some potholes on the way — or you could even crash.”

When thinking about how much risk you can take, it’s important to take into account where you’re at in your financial life. How much do you have in savings to weather a financial storm? How close are you to retirement or needing to make a big purchase? 

“If you are saving up to buy a home in the next six months, putting that money in the stock market is probably a bad idea because the market could go down right before you take the money to close on the house,” says Roland Chow, a financial planner and portfolio manager at Optura Advisors. “If you are saving up for a retirement that is 20 years from now, then the stock market is a great idea.”

In this scenario, or in any other where you don’t want your investment to lose value within the next few years, a CD is probably the better choice.

“One of the major pros of a CD is that unless you access the funds prior to maturity, you won’t lose any of the principal you put into the CD,” Wicker says.

The bottom line

At the end of the day, it’s possible to invest funds both into the stock market and in a CD account simultaneously. As Rob Burnette, investment advisor representative at Outlook Financial Center, puts it, “This doesn’t have to be an ‘all or nothing’ decision.”

“If the money has more than one purpose, then invest each amount according to its purpose,” Burnette says. “Short-term goals and needs may be better suited for CDs, while longer investment horizon funds should be considered for investment in the stock market.”

You can also consider a CD laddering strategy. This is when you divide up your cash into a few portions, putting each one into a CD with a different term, usually a few months apart. Then, when those CDs come to maturity, you can either take the money (if you need it for expenses) or roll it into a new CD at current market rates.