Rates on certificates of deposit are finally rising. If you are looking to kick-start your savings strategy, consider adding CDs to the mix.

CDs are seen as safe bets for saving or investing since they are federally insured and returns are guaranteed. And when CD rates go up, as they have in the past year, you will earn more money.

“It’s important for people who have been disappointed by CDs in the past to bring them back into their rotation,” said Robert Frick, corporate economist at Navy Federal Credit Union.

CD rates took a big hit after the financial crisis, and they have remained low for a while. That started to change at the end of 2015, when the Federal Reserve made the first of several rate increases.

While the national average rates rise gradually, online bank CDs have been skyrocketing.

A NerdWallet analysis found that the average one-year CD rate across five online banks climbed from 1.46 percent to 2.20 percent annual percentage yield, or APY, in the past 10 months alone.

The best five-year CDs can come with rates near or even above 3 percent.

But just because CDs tend to offer some of the highest guaranteed returns doesn’t automatically make them the best home for your savings or investments. Here are three scenarios where CDs can work well:

Protecting savings: These may include saving for a down payment on a home or car. Whatever the goal, the money won’t be used for years and can stay safely out of reach in CDs.

Building short-term wealth: CDs with short terms, such as one or two years, can make sense if there’s a plan to later invest that money.

Ensuring returns without risk: Investing in long-term CDs is generally best for people, typically retired, who want to avoid risking their money in the stock market.

If rates sound good right now and CDs work for your situation, be sure that you are comfortable with two potential downsides: early withdrawal penalties and missed opportunities for higher rates later. If you end up needing money that’s in a CD and you withdraw it before the term expires, there’s usually a penalty that cancels out some or all the interest you have earned.

CD ladders can minimize the downsides. A CD ladder is a way to spread out a large amount of money into multiple CDs of varying term lengths, such as one year, two years and three years. When each CD expires, you either withdraw funds if you need them or reinvest in another CD.


Spencer Tierney writes for NerdWallet, a personal finance website.