Should I Use a High-Yield CD for My Savings?

Anna from Washington D.C. says:

Thanks for putting out a great show. I've been listening to the Money Girl podcast for several years, and your straightforward advice and information has helped me make good money decisions. I share your work with everyone. 

Here's my question: I keep the majority of my money in a high-yield savings account that used to offer 1.7% APY. However, due to the Federal Reserve lowering interest rates in response to the economic impacts of the COVID-19 pandemic, my bank recently reduced the rate to 1.55% and then to 1.3% APY. 

This rate reduction is obviously frustrating for me as a customer, but I understand that a lot of this is outside of anyone's control in these trying times. My bank is offering a CD, which earns a 1.55% APY, which seems attractive given the additional boost. However, I'm not really sure what the pros and cons are for CDs. And to be honest, I'm not exactly sure what a CD is. 

I keep my six-month emergency fund savings in this high-yield savings account, and I'm trying to save for a down payment on a house. I want my emergency fund to be readily available in these uncertain times. But I probably won't need to touch my down payment savings for at least another year or two, or maybe more, since the housing market is very expensive in the D.C. area.

Does moving my money to a CD make sense, or should I just keep it in the high-yield savings account and hope that the rate will eventually increase again?

Thanks for your kind words and thoughtful question, Anna! I'll answer it by explaining what a CD (certificate of deposit) is and how to use one wisely. You'll get an overview of the different types of CDs and learn the best places to find high-yield CDs if they're right for you.

What is a CD?

A CD is a product offered by financial institutions, including banks, credit unions, investment firms, and insurance companies. It's different than a savings or money market account because you give up access to your money for a period or term. 

A CD gives you a guaranteed return, albeit a low one right now, no matter what happens to the economy or the financial markets.

In exchange for agreeing not to touch your money during a CD's term, you typically get more interest than with other types of deposit accounts. A CD gives you a guaranteed return, albeit a low one right now, no matter what happens to the...

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