Forget CDs, Even With Rates Over 4%. Here's Where to Put Your Money Instead

I've always thought of certificates of deposit (CDs) as a decent mid-term play. The rates are predictable. The risk is low. But they've never really clicked with me.

That's because CDs don't do much for two key goals:

• If I need short-term flexibility, a CD just ties my money up.
• If I want long-term growth, CDs get left in the dust by higher investing returns.

Even now, with some CDs offering 4.00% APY, I'd rather keep my cash in accounts that give me more control, or grow it in assets with higher upside.

Here's where I'd put my money instead.

Short term: A high-yield savings account

If you're saving for something in the next year or two (like a vacation or new car) your money needs to stay safe, liquid, and ideally earn big interest.

That's where high-yield savings accounts (HYSAs) shine. Some top online banks are offering near 4.00% APYs, and your money remains fully accessible.

Here are of the top perks of HYSAs:

• No early withdrawal penalties
• FDIC insurance on balances (up to $250,000 per depositor, per bank)
• Many online banks offer no fees, no minimum balances, and unlimited transfers.

I've personally kept my ~$25,000 emergency fund in an HYSA earning above 4.00% for the last couple years. And it's really paying off. I get nearly the same interest rate as some of the best 1-year CDs, but without any lockup.

Check out today's top HYSA rates and start earning more on your cash savings.

Long term: Low-cost index funds

CDs and savings accounts protect your money. But if you want your money to grow over the long term, investing is where the real power is.

Over the past 30 years, the S&P 500 has returned an average of about 10% annually. That's more than double today's top savings account and CD rates.

And when compounded over many years, the difference is mind-blowing.

Here's an example of how $10,000 would grow over decades at either a 4% or 10% average rate of return:

Personally, most of my long-term savings are in index funds. I've always seen index funds as one of the most reliable ways to build wealth over time, especially low-cost funds that spread your money across hundreds of companies (like S&P 500 funds).

If you're already contributing to a 401(k) plan, chances are you're investing in a mix of highly-diversified mutual funds already. But if you want more flexibility or investing options outside of retirement accounts, opening a regular brokerage account is a great move.

I don't try to stock pick or outperform the market. I'm happy taking an average return and letting time and compound interest grow my wealth.

The bottom line

CDs aren't useless. But they only suit a narrow scope of financial goals.

If you need short-term access and flexibility, high-yield savings accounts offer similar 4.00% returns with way less restriction.

And for long-term goals, low-cost index funds have a proven track record of building serious wealth over time.

Want to get in on the stock market's high returns? Check out our list of the best stock brokers to open an account and start investing today.