The Federal Reserve has started what is expected to be a multi-year cycle of cuts to its benchmark interest rate, and as a result, CD yields have started to drift lower. However, they are still a solid choice for retirees looking to create income streams from their savings, and for a few reasons.
With the Fed set to cut rates several more times in the coming years, locking in today’s high CD yields could be a smart idea. Click here for our updated list of the best CD rates right now.
1. Yields are still historically high
Here’s a key point to know. The Fed recently cut rates and CD yields started to fall. But not by that much.
CD yields remain significantly higher than they were just a few years ago and aren’t too far below where they peaked earlier this year. Before 2022, it was a challenge to find a 1-year CD paying more than 1%. As of this writing, 1-year CDs are readily available with interest rates of 4% or higher.
Our Picks for the Best High-Yield Savings Accounts of 2024
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Capital One 360 Performance Savings APY 4.00%
Rate info
Member FDIC.
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APY 4.00%
Rate info |
Min. to earn $0 |
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American Express® High Yield Savings 
APY 4.00%
Rate info
Member FDIC.
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APY 4.00%
Rate info |
Min. to earn $0 |
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CIT Platinum Savings 
APY 4.70% APY for balances of $5,000 or more
Rate info Min. to earn $100 to open account, $5,000 for max APY
Member FDIC.
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APY 4.70% APY for balances of $5,000 or more
Rate info |
Min. to earn $100 to open account, $5,000 for max APY |
It’s a similar situation for longer-term (5-year) CDs. In late 2021, top rates on 5-year CDs were about 1.3%. Now, you can find a 4% APY on a 5-year CD.
To be sure, CD rates will likely continue to gravitate downward with future rate cuts. But the days of the Fed’s zero-interest-rate policy aren’t likely to return anytime soon, so CD yields are likely to remain significantly higher than a few years ago.
2. CDs are safe investments
CDs offered by top banks, even online banks that pay high yields, are covered by FDIC insurance. Depositors are covered in the event of a bank failure for up to $250,000 per person, per institution ($500,000 for a joint account). Some banks even take it a step further and partner with other banks to offer FDIC protection in the millions of dollars.
In fact, the only way you can lose money with a CD is if you need to withdraw the money very early in the term. Typically, the early withdrawal penalty for a CD involves giving up a few months’ worth of interest, so if you withdraw your money in fewer months than the penalty amount, it is possible to lose a small amount of money.
3. CDs can provide both flexibility and consistency
When used properly, CDs can offer consistent income while helping you maintain financial flexibility.
Consider a strategy known as CD laddering. The most common form of this involves taking your money, dividing it by five, and putting this amount into a 1-year, 2-year, 3-year, 4-year, and 5-year CD. So, if you had $100,000, you’d put $20,000 into each one. As each CD reaches maturity, you’d roll the money into a new CD with a 5-year term.
The idea is that you’ll always have some of your money available within a year. Eventually, all of your money would be in 5-year CDs, with staggered maturity dates, providing a nice combination of steady and predictable income with the ability to use your money for a big purchase, or to reallocate it to other investment opportunities, once a year.
The bottom line
Don’t make the mistake of ignoring CDs just because interest rates have fallen a bit. CDs can still be used to create a reliable income stream that is FDIC protected. Even if you prefer to invest primarily in stocks and bonds, CDs can add a nice element of predictability and diversification to your retirement investing strategy.
