There’s a reason so many people have jumped on the CD bandwagon. CD interest rates are at record highs, and many 12-month CDs offer a 5% APR. That’s a pretty good deal considering you’re taking no risk when you open a CD (assuming your bank is FDIC-insured and your deposit is capped at $250,000).
But while you might think a 5% CD is an offer that’s too good to be true, in reality you can get a lot more than 5%. And if you have a long savings window, you’re probably much better off investing your money than settling for what a CD will get you.
With a stock portfolio you could make so much more out of your money
There is a world of difference between putting money in a CD and using it to buy stocks. With a CD, as mentioned, your deposit is guaranteed. That is never the case with buying stocks. You could invest $10,000 in a stock portfolio only to see its value plummet to $8,000 in a matter of months.
But there’s one big advantage to investing money in stocks instead of CDs – you’re likely to get a much higher return over the long term. That could mean the difference between reaching your financial goals or not.
Our pick of the best high-yield savings accounts of 2024
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American Express® High-Interest Savings 
APY 4.25%
Price info
4.25% annual percentage rate from August 16, 2024
Member of the FDIC. |
APY 4.25%
Price info
4.25% annual percentage rate from August 16, 2024 |
Min. to earn 1 dollar |
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UFB Portfolio Savings Account 
APY 5.15%
Price info
To ensure you continue to receive the highest interest rate with UFB, you need to keep an eye on their interest rates. Occasionally, the bank opens new accounts with higher interest rates. Existing accounts will need to contact the bank to request to be transferred to one of these new accounts.
Member of the FDIC. |
APY 5.15%
Price info
To ensure you continue to receive the highest interest rate with UFB, you need to keep an eye on their interest rates. Occasionally, the bank opens new accounts with higher interest rates. Existing accounts will need to contact the bank to request to be transferred to one of these new accounts. |
Min. to earn $0 |
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CIT Platinum Savings 
APY 5.00% APY for balances of $5,000 or more
Price info
5.00% APY for balances of $5,000 or more; otherwise 0.25% APY Min. to earn $100 to open an account, $5,000 for maximum APY
Member of the FDIC. |
APY 5.00% APY for balances of $5,000 or more
Price info
5.00% APY for balances of $5,000 or more; otherwise 0.25% APY |
Min. to earn $100 to open an account, $5,000 for maximum APY |
Today’s CD interest rates are higher than usual. But even today’s 5% interest rates pale in comparison to the stock market’s average annual return of 10% over the past 50 years.
You should also know that a 10% return takes into account both years of outstanding performance in the stock market and years of losses. This should show you that as a long-term investor, you are more likely to make money in the stock market than not.
How much could you earn with stocks versus CDs?
Now let’s look at what difference a stock portfolio versus a CD strategy could make for your goals. If we assume CDs continue to yield 5% over the next 25 years (which they won’t, but we’ll assume so), a $10,000 deposit today can grow to nearly $34,000. So in that case, you can expect to make about $24,000 in profit.
But let’s say you invest that $10,000 in a stock portfolio instead. At 10% over the next 25 years, you’ll have an account balance of about $108,000. That’s a gain of $98,000 – about four times the gain you’d get from CDs. And whether you’re saving the money for college, retirement, or something else, $98,000 will probably do you a lot more good than $34,000.
Don’t be seduced by today’s CD rates
It makes sense to buy a 5% CD if you are saving for a short period of time and it is not safe to put your money in stocks. This generally means a period of five years or less.
However, for a long-term savings window, investing in stocks is a better choice. Those who stick with CDs will have to settle for a lower return, and that will likely continue to decline as interest rate cuts take hold.
If the idea of investing in stocks makes you nervous, you can mitigate that risk by building a diversified portfolio—that is, investing in companies from different industries. But if that seems like too much, you can buy shares of an S&P 500 ETF (exchange-traded fund), which offers you built-in diversification.
With this strategy, you are essentially investing in the entire stock market. And although you are taking a risk, the returns can be huge.
These savings accounts are FDIC insured and could earn you more than ten times your bank account
Many people miss out on guaranteed returns because their money sits in a large bank savings account and hardly earns any interest. Our selection of the best online savings accounts could earn you more than ten times the national average interest rate on savings accounts. Click here to discover the best-in-class accounts that made our shortlist of the best savings accounts for 2024.
