We never know exactly where interest rates are headed next. However, one thing is for sure right now: Nobody expects CD rates to go up any time soon.
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The Federal Reserve has signaled that it will likely cut the federal funds rate twice in the second half of 2025. If that happens, CD rates will drop, too.
Many banks have already lowered their CD rates over the past couple of weeks. That could soon become a bigger trend.
So should you open a 5-year CD while the getting is good? Here are some things to think about before you invest.
1. A 5-year CD looks like a good deal — for now
CD rates are still near 15-year highs, but every analyst and their mother expects rates to drop soon. Not only that, but a recent Fed forecast suggested that rates may continue to fall through 2027 and beyond.
That’s based on the Fed’s economic guesswork, though. And it’s impossible to predict the future of the U.S. economy right now.
We have yet to see the real impact of the Trump administration’s trade policies. If inflation spikes, the Fed may raise interest rates to cool down spending.
Still, CD rates seem more likely to drop than to go up in the near term. So if you’ve been thinking of opening a 5-year CD, this looks like a pretty good opportunity.
2. Are CDs right for you?
Five-year CDs play a pretty specific role in a financial plan. They’re great for money that you won’t need for five years. However, they’re not the best place for money you’ll need sooner than that — or for money that you can leave invested longer than that.
For short-term needs, a high-yield savings account is best
For cash that you may need soon, like your emergency fund, a high-yield savings account is best. You can withdraw or deposit money at any time, and you’ll still get a high interest rate.
In fact, the best high-yield savings accounts pay higher APYs than most 5-year CDs right now. Our favorites pay as much as 4.40% APY. Click here to see our list of the best high-yield savings accounts and open a new account today.
For long-term wealth building, the stock market is better
If you can leave your money untouched for over five years, then the stock market may be a better place for it than a CD.
In almost every five-year period in the stock market’s history, stocks have earned investors way more money than CDs. Since 1999, the average five-year return of the S&P 500 Index is 47% — more than twice the amount a five-year CD earning 4.00% APY would earn you throughout its term.
Stock market investing comes with risk, and you need time to ride out the market’s ups and downs. That’s why investing in stocks is a great idea if you won’t need that money for five years or more.
Want a smart and simple way to invest in stocks? Open an individual retirement account (IRA) and buy an S&P 500 ETF through your broker. With one purchase, you’ll be invested in over half the U.S. stock market — and your IRA will shield your investments from taxes, so long as you play by the rules.
To get started, check out our list of the best IRA brokers and open a new account today. Within minutes, you can be investing for your future — the smart way.
CDs are for safety and a decent, guaranteed return
5-year CDs are a good place for cash that you want to keep safe and growing at a respectable rate for years to come.
They’re especially appealing for people who:
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Are in or near retirement
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Have a lot of cash that they want to protect from volatility and inflation
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Are saving up for a big purchase in five years
If any of those sound like you, then now may be a great time to lock in a 5-year CD.
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