Even though the Federal Reserve has begun cutting interest rates, it's still possible to lock in a competitive rate on a certificate of deposit.

CDs offer fixed interest rates for terms ranging from a few months to several years and typically come with higher rates — currently around 4% to 5% — compared with an average of 0.57% for savings accounts.

That means you could earn $400 to $500 on a $10,000 deposit in one year with a CD, compared with just $57 with a savings account. That's about the best interest rate you can find without investing the money, which carries a higher degree of risk.

However, with a CD, the trade-off for a good interest rate is that your money is locked in for a set term of several months or years.

"CDs are a great place for your cash if you don't need the money for a specific amount of time," says Jeremy Keil, a certified financial planner in Wisconsin.

Why CDs might be the best place to store your cash for now

Since CDs are a smart option for money you won't need for several months or years, they're ideal for people saving up for a purchase, such as a down payment on a home or car. They're considered low-risk because they aren't tied to volatile financial markets and are typically insured by the Federal Deposit Insurance Corporation, which protects deposits up to $250,000 per depositor, per bank.

However, you'll need to avoid withdrawing the funds before the term ends, as early withdrawals trigger penalties that can wipe out the interest earned.

And while some high-yield savings accounts might offer similar interest rates, CDs provide a guaranteed fixed rate for the entire term. In contrast, savings account rates are variable and may decline as the Fed continues to lower its rates, with further cuts expected.

The benchmark interest rate is projected to drop as low as 2.5% by 2026, down from its current range of 4.75 to 5%. Since it directly influences savings account rates, those are likely to drop further as well. 

With CDs, however, the rate you lock in stays the same. "A CD will give you more certainty and very likely a higher interest rate over that time period versus holding your cash in a high-yield savings or money market account," says Keil.

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