If you’ve been searching for a safe place to lock up your money and have been contemplating a certificate of deposit (CD), you’re not alone. Stock market volatility, the recent U.S. economic contraction and wide-ranging uncertainty have even seasoned Wall Street professionals searching for safer places to park their cash. And after years of near-zero rates, CDs made a comeback in 2023 and 2024 with some banks offering headline-grabbing yields.
But in 2025, the landscape for savers is shifting. There is a lot of uncertainty about the Federal Reserve’s next move and that move could blindside savers either way if money is locked up in a CD.
Here’s why the risks and opportunity costs of CDs are rising, why they may not be your best savings option in today’s market and why bonds could be the superior alternative.
Why today’s CDs may not be as attractive as they seem
It all starts with the Federal Reserve. The Fed’s interest rate policy is the engine behind CD yields. After raising rates 11 times in 2022 and 2023, the Fed reversed course, cutting its benchmark rate three times in late 2024.
Investors are betting on more rate cuts in 2025, with markets positioning for nearly 1 percentage point of cuts by the end of the year. However, Wall Street could be in for a surprise.
At the Fed’s most recent meeting in May, the policy-setting committee left interest rates unchanged, and Chair Jerome Powell pointed to the uncertainty surrounding the economic outlook. He noted that the committee was being especially mindful of the potential impact of tariffs, saying the U.S. central bank is “not in a hurry” to make any changes to monetary policy.
“It seems to be we’re entering a new phase where the administration is beginning talks with a number of our important trading partners and that has the potential to change the picture materially — or not,” Powell said following the Fed’s rate decision. “It’s going to be very important how that shakes out.”
Since the start of 2024, the highest one-year CD rates have decreased by more than 125 basis points, while top five-year CD rates have fallen by 35 basis points. Meanwhile, national average rates for the same terms have remained relatively flat.
While a few online banks still advertise top CD rates of 4.40 percent APY on select terms, the national average tells a different story. According to Bankrate’s survey on May 8, 2025, the average one-year CD yields just 2.02 percent APY and the five-year average is even lower at 1.68 percent.
But even the highest-yielding CDs require savers to lock up their cash for a prolonged period of time and often require high minimum deposits with penalties for early withdrawals. Plus, the averages are a far cry from the attention-grabbing offers you might see in ads. If you’re not willing or able to chase the highest-yielding short-term offers, which may require large minimum deposits or a new customer status, you could wind up with a CD that doesn’t even outpace inflation.
The inflation factor
The rate of inflation has cooled from its 2022 highs, but the Fed’s latest projections show it will remain above the 2 percent target for at least another year. With the national average one-year CD rate of 2.02 percent, you would likely fail to keep pace with inflation over the next year, and many savers will see even lower real returns after taxes and fees.
But even for high-yielding CDs, there are more important factors to consider beyond just the rate.
The flexibility factor: why liquidity matters
One of the biggest drawbacks of CDs is their lack of flexibility. When you commit your money to a CD, you’re agreeing to lock it away for a set term – often a year or more.
Early withdrawals typically mean forfeiting some or all of your interest earnings. In a year marked by economic uncertainty – slowing job growth, persistent inflation and shifting Fed policy – liquidity is more valuable than ever. Locking into a CD at today’s average rates means missing out on the possibility of higher yields elsewhere or the flexibility to take advantage of changing market conditions.
High-yield savings accounts and money market funds now offer yields that rival or exceed the national average for CDs without tying up your funds. For most savers, the ability to move quickly and respond to changing rates outweighs the marginal bump in yield a CD might offer. It’s also important to remember that high-yield savings account rates are variable, while CD rates remain fixed throughout the term.
Opportunity cost: The CD lose-lose scenario
Many savers may be rushing to lock in CD rates now while some banks still offer yields above 4 percent, but that strategy can create a dilemma regardless of which way the economy turns.
Inflation expectations have risen significantly in recent months. The latest University of Michigan survey found that consumers’ inflation expectations for the next year soared to 6.7 percent, the highest reading since 1981. The jump marked four straight months of increases of 0.5 percentage points or more.
Inflation expectations are seen as a precursor to real-world inflation increases because, as expectations rise, consumers begin to accept price increases and demand higher wages. Those are the two biggest influences on inflation.
If inflation shows a sustained pickup, the Fed might maintain or even raise rates, which means deposit rates would stay elevated or increase. Those with money in CDs would miss out on these new higher deposit rates and potentially be looking at negative real returns (after inflation) on their savings. Put simply, you’ll be effectively losing money and won’t be able to move into a higher-yielding asset without paying a penalty.
Bonds: A potential alternative for savers
Bonds are shaping up to be a stronger option than CDs for everyday savers right now for a few good reasons. U.S. Treasury bonds and bills are currently offering yields that often meet or exceed the average CD rate but with far more flexibility.
Unlike CDs, which tie up your money for a set period and penalize you for early withdrawals, Treasuries let you choose your maturity and can be sold before they come due if you need access to your cash.
Getting started with bonds is straightforward. You can open an account at TreasuryDirect.gov in just a few minutes and buy Treasury bills, notes or bonds directly from the government with no commissions. If you already have a brokerage account with firms like Fidelity, Schwab or Vanguard, you can buy Treasuries, bond funds or exchange-traded funds (ETFs) right alongside your other investments – often with no extra fees.
Bond funds and ETFs let you invest in a diversified mix and access your money any business day while Treasuries are backed by the U.S. government and can even offer tax perks if you opt for municipal bonds.
For savers looking for a competitive yield without locking up their money, bonds are a compelling alternative to CDs in today’s market.
What savers should do while rates are on hold
No matter how you’re feeling about a CD right now, there are some steps you should absolutely take to ensure you’re getting a solid return on your savings.
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If you’re set on a CD, seek out the highest APYs and shortest terms and be wary of restrictive minimums or withdrawal penalties. Online banks and credit unions typically offer significantly better rates than traditional brick-and-mortar institutions.
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High-yield savings accounts, money market funds and bonds offer competitive yields and full liquidity. Each has its own advantages:
- High-yield savings accounts: FDIC-insured with easy access to funds and competitive rates above 4 percent at many online banks
- Money market funds: Typically higher yields than savings accounts with check-writing privileges and daily liquidity
- Bonds and bond funds: Potentially higher yields and more flexibility than CDs with varying levels of risk and tax advantages
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Watch the Fed’s next moves. With inflation expectations rising and economic data sending mixed signals, staying informed about rate trends is important to help you make timely decisions about your savings.
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In uncertain times, keeping your options open is often the best financial strategy. If you still want some rate security while maintaining some liquidity, consider a CD ladder or barbell approach that gives you access to some of your money while keeping some locked in at higher rates.
Bottom line
CDs can still make sense for savers who have enough money that they can search for the best rates and afford to keep money locked up for an extended time. But with the Federal Reserve currently on hold, the future direction of interest rates remains uncertain, creating a potential lose-lose scenario for CD investors.
In 2025, the risks and opportunity costs of locking up your cash in a CD outweigh the rewards for most savers. Flexibility isn’t just a luxury — it’s your best defense in a changing market. And for many, bonds are the smarter, more accessible alternative.
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