Many financial experts predict that rate cuts are coming, and that’s why many savers are considering CDs—also known as certificates of deposit. While CD rates have already begun to decline from their 2023-2024 highs, CDs can be a good way to lock in a decent interest rate before banks start to lower the rates of their products. To determine if a CD might be a good fit for your financial goals, let’s take a look at some of the pros and cons of opening a CD in 2025.
Advantages of a CD in 2025
1. You can lock in a competitive rate.
Right now, many CDs offer relatively high interest rates, including options from Bank5 Connect. CDs often have higher interest rates than traditional savings accounts. And unlike savings accounts, which typically have variable rates, CDs let you lock in a rate for a set period of time—called the CD term. You can even add money to some CDs after opening them. These products, called add-on CDs, let you take advantage of compounding interest and maximize your return with additional contributions.
2. Less risk than traditional investments like stocks and bonds.
CDs are safer than traditional investments like stocks and bonds because they’re protected by deposit insurance. FDIC insurance protects your money up to $250,000 per person, per bank. This means your money—and the interest it earns—is covered if the bank were to close or fail. Bank5 Connect offers even more protection through the Depositors Insurance Fund (DIF). This extra coverage insures all your deposits, even if they’re over $250,000. So, your money stays safe no matter how much you’ve saved.
3. Predictable, guaranteed returns.
Unlike traditional investments, which can go up and down in value depending on the stock market, CDs offer steady growth. When you open a CD, you lock in a fixed interest rate that stays the same for the entire term. That means you’ll know exactly how much you’ll earn and when you’ll earn it. This makes it easier to plan for your financial goals. You can even use a CD calculator to estimate your total return based on different CD options.
Potential Downsides of a CD in 2025
1. Lack of liquidity.
When you open a CD, your money is locked in for the full term—whether that’s six months or five years. If you withdraw it early, you’ll likely be charged a penalty fee which can eliminate your interest earnings or even reduce your original deposit. That’s why CDs aren’t ideal for emergency savings or money you might need on short notice.
2. Potential to miss out on higher rates.
While most financial experts believe interest rates will drop at some point in 2025, there’s no guarantee that they will. Rates could stay the same longer than expected, and they could even rise again before falling. It’s important to remember that once you open a CD, your rate is locked in. If better rates become available later, you can’t just cancel your CD. Withdrawing your funds early usually means paying a steep penalty. That’s why it’s important to weigh this risk before committing to a long-term CD.
3. Returns on a CD aren’t typically as high as traditional investments.
CDs are safe, but they don’t usually grow as fast as stocks or mutual funds. If you only invest in CDs, you might miss out on higher returns, making it harder to reach long-term goals like saving for college or retirement. That’s why most financial experts suggest diversifying your investments. That means spreading your money across different types of accounts, like CDs, savings accounts, money markets, and traditional investments. This strategy helps balance safety with growth. Ultimately, it’s a good idea to consult with a financial professional to understand the tax implications and risks involved with different investment options.
In 2025, CDs offer a valuable way to lock in a competitive, guaranteed rate—especially in today’s uncertain interest rate environment. While they may not suit every savings need, CDs can be a smart addition to a diversified investment strategy. Curious if a CD might fit in with your financial goals? Explore Bank5 Connect's current CD rates and lock in your return today.