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PHNjcmlwdCB0eXBlPSJ0ZXh0L2phdmFzY3JpcHQiIHNyYz0iaHR0cHM6Ly9zdGF0aWMubXlmaW5hbmNlLmNvbS93aWRnZXQvbXlGaW5hbmNlX3ZpZXdwb3J0X2RldGVjdGlvbi5qcyI+PC9zY3JpcHQ+PHNjcmlwdCBhc3luYyB0eXBlPSJ0ZXh0L2phdmFzY3JpcHQiPm15ZmlXYXRjaFdpZGdldCgnbXlmaVdpZGdldF8wJyk7PC9zY3JpcHQ+=Ann C. Logue is a freelance writer specializing in business and finance. She is a chartered financial analyst, and before coming into writing, she worked for 12 years as an investment analyst. She's written five books on investing for Wiley’s …For Dummies series, and her freelance writing has appeared in the New York Times, Barron's, Newsweek, and Entrepreneur, among others. She can be reached at annlogue.comHearst Television participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites. This may influence which products we write about and where those products appear on the site, but it does not affect our recommendations or advice, which are grounded in research.Mobile app users, click here for the best viewing experience.CDs are in the news these days for their sky-high rates — the best since the mid-2000s. In some cases, you can even find rates topping 5%, particularly on 1-year CDs, which are offering the best rates right now. Still, a CD is a commitment. You're locking a portion your money away for a set period of time, which means you have to be sure you won't need those funds in the near-future. CDs also have fixed rates, which is a good thing if rates drop. But if rates go up, you could feel like you're missing out.Related Video Above: Is it a Good time to Buy a Home?To determine if a CD is worth it for you, you need to look at the interest rate on offer and your financial goals. There are times when a CD makes perfect sense. In this article, we’ll look at how CDs work, the best situations for CD investments, and how to make the smart choice for your needs.How CDs workA CD is a bank account that offers a guaranteed interest rate for a predetermined amount of time, usually anywhere from six months to five years. They are a standard offering at banks and credit unions for customers who want to save money for a fixed term. CDs usually have a minimum deposit requirement of $1,000, although different banks will have different minimums. Often, a higher deposit will earn a higher interest rate. Pros of CDsGuaranteed return: One of the biggest advantages of CDs is that they offer a guaranteed return on investment. This means that regardless of what happens in the stock market or the economy, you will receive a predetermined amount of interest on your investment. This makes CDs an excellent option for those who want a predictable return on their investment. It also makes CDs worth it when interest rates are high and expected to be lower in the future.Federally insured: Whether you open a CD at a bank or a credit union, you will receive deposit insurance of up to $250,000. This makes CDs a safe savings option.Simplicity: CDs are easy to understand and simple to open. This makes them a good choice for people who want to earn a return on their savings while they evaluate other types of investments.Cons of CDsRelatively low returns: CDs offer high returns relative to other bank and credit union accounts, but they generally have lower returns than stocks, bonds, and other types of investments. Inflation risk: CDs are subject to inflation risk. Inflation can erode the purchasing power of your money over time, and if the interest rate on your CD is lower than the rate of inflation, you may actually lose money in real terms. That’s why they are usually not recommended for long-term goals such as retirement.Lack of liquidity: If you cash out a CD before its maturity date, you will be subject to early withdrawal penalties. These can be as much as a year’s worth of interest. If you need consistent access to your money, a high-yield savings account might be a better option for you. (Rates are also up on these types of accounts right now.)Best situations for CDsCDs are designed to be a safe, predictable, and time-limited savings vehicle. Thus, they make the most sense for someone looking for a low-risk investment over a specific period of time. For example, maybe you are planning to take a big anniversary trip in two years. Putting the money in a CD now will ensure that you earn interest and that the money will be there when you need it. Or, maybe you have a tax payment due in six months. You have the money now, and want to keep it safe. Opening a CD can protect your funds, and the withdrawal penalty will save you from the temptation to spend the money before the IRS gets it.When current CD rates are high, CDs may be a good place to move some of your fixed-income holdings. At times, you can use CDs to lock in a higher return than you may be able to get in other types of investments. It doesn’t happen often, but pay attention when interest rates are rising.Making smart use of CDs Are CDs worth it? That depends on your goals and the rate of interest in the market. The combination of safety and higher return than other types of bank accounts make CDs a useful tool for savers. Because the rates of return on CDs are lower than other types of investments, such as stocks, CDs are not great for certain goals. If you have several years until retirement, you’re probably better off considering a stock mutual fund. If you have a specific shorter-term goal, rates are attractive, and you can lock your money up for a while, any bank or credit union can set you up. Rates differ between institutions, though, so it pays to shop around.Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at lauren.williamson@hearst.com.