CDs vs. Stocks: Where Should Your Money Go in 2024?


These days, CD rates are looking pretty attractive on the heels of the Federal Reserve’s 2022 and 2023 interest rate hikes. But the stock market has also had a strong start to 2024. In fact, the S&P 500 index, which is generally considered a measure of the stock market’s performance as a whole, is up over 8% since the start of the year.

If you have some money to spare, you may be wondering whether it pays to use it to open a CD or invest it. And the answer is, it depends on your personal timeline.

The upside of CDs

There are several benefits to opening a CD. First, the interest rate you lock in on your money is guaranteed throughout your CD’s term. With a savings account, your interest rate can fall (or rise) with market conditions.

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What’s more, as long as you bank at an FDIC-insured institution and your CD deposit does not exceed $250,000 (or $500,000 for a joint account), your principal balance is protected. So even if your bank goes under, you’re guaranteed not to lose a dime. 

The same can’t be said for the stock market. Stock values can rise and fall from one day to another. So if you put $5,000 into a 12-month CD, you’re guaranteed to get your $5,000 back after a year plus 12 months of accrued interest. The only way that won’t happen is if you cash out your CD early and get hit with a penalty. With stocks, a $5,000 investment might only be worth $4,000 a year later if the market takes a dive.

The upside of stocks

While stocks carry a lot more risk than CDs, the benefit is that the return they generate could be a lot higher. Many CDs today are paying in the 4% to 5% range, depending on length. But the stock market’s average annual return over the past 50 years has been 10%. So all told, with stocks, you have the potential to make a lot more money. 

What’s best for you?

If you’re not sure whether to choose stocks over CDs in 2024, or vice versa, the main question to ask yourself is “What’s my timeline?” If you’re saving for a near-term goal, a CD is probably a better bet. Stock values can fluctuate a lot within a one- or two-year period. 

As a general rule, it’s best to keep money out of the stock market if you expect to need it within five years. But if you’re saving for a longer-term goal, then choosing stocks over CDs could be a solid bet. 

Let’s say you have $5,000 to work with, and you know you won’t need it for 10 years. If you snag a 10% return on it by buying stocks, in a decade, you’ll have turned it into almost $13,000. But if you stick to a series of CDs paying 4% (and that rate is unlikely, because interest rate cuts will likely drive CD rates down in the coming years, but we’ll go with it for now), you’ll end up with just $7,400 in 10 years.

Generally, when you’re putting money away for a short-term goal, a savings account or CD is your best bet. But when you’re thinking long-term, stocks have the potential to grow your money a lot more. So keep that guidance in mind as you decide what to do with your money in 2024.

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