Are CDs Still Worth It in 2025? Rates Are Up, But So Are the Trade-Offs

CD

In 2025, Certificates of Deposit (CDs) are back on investors’ radars. After years of near-zero yields, banks and credit unions are now offering CD rates in the 5.0% to 5.6% range, depending on the term. For savers who are tired of stock market volatility and just want something stable, that’s definitely tempting.

But the real question is: what are you giving up in exchange for that guaranteed yield?

The biggest trade-off is obvious—liquidity. Once you put your money in, it’s locked up for 6, 12, 24 months, or more. If you break that term early, you’re usually hit with penalties that could wipe out most of the interest. That’s fine if you absolutely know you won’t need the cash, but in a year where a Fed pivot is still on the table and economic conditions can shift fast, that kind of rigidity can cost you.

There’s also the matter of opportunity cost. Short-term Treasuries are currently offering similar (sometimes better) yields, but they can be sold any time and their interest is exempt from state and local taxes. That last part is huge if you’re in a high-tax state—your 5.25% CD might not actually beat a 5.00% Treasury bill after taxes.

And don’t forget: CD interest is fully taxable at both the federal and state level. That’s a hidden drag that can shrink your real return fast, especially if you’re in a high-income bracket. Treasury income avoids state taxes completely, which makes it much more efficient in taxable accounts.

That said, CDs aren’t useless. They can still make sense if you have a fixed timeline—say, saving for a wedding or house down payment in exactly 12 months—and you’re certain you won’t need that money early. The return is guaranteed, the risk is near-zero, and there’s some comfort in knowing exactly what you’ll get.

They also work for IRA accounts, where the tax treatment is neutralized and you're not touching the money until retirement anyway. For retirees building income ladders or just wanting to park some funds in safe territory, CDs still hold up.

The key is to shop around. Online banks and credit unions are offering far better rates than traditional banks. Some even have promotional CDs or no-penalty terms that give you a little more flexibility—but always read the fine print. And in a crowded product space, there are now plenty of CD alternatives that might deserve a look.

Treasury bills. High-yield savings accounts. T-bill ETFs. Money market funds. All of them compete for the same “safe money” role, but with different combinations of yield, access, and tax treatment. If you're after short-term safety and predictable return, it's worth comparing across the board instead of jumping at the highest APY you see on a banner ad.

Bottom line? In 2025, CDs are no longer a default choice—they’re one option among many. For some people, they’ll fit perfectly. For others, especially those who value flexibility, liquidity, or tax efficiency, they might be a step behind the curve.