If you have money you’re earmarking for emergency expenses, then putting it into a savings account is your smartest bet. With a savings account, you can access your money whenever you choose.

CDs work differently. With a CD, you’re committing to tying up your money for a preset period. And there can be penalties for cashing out a CD before it comes due.

Those penalties tend to depend on the bank. But at Capital One, for example, you’ll lose out on three months’ worth of interest for cashing out a CD with a term of 12 months or less before it matures. So if you’re going to open a CD, make sure that’s the right choice, and that you can afford to part with your money for its duration.

CDs come in a variety of terms, and many banks offer six-month CDs. You may be interested in going this route in 2024, but know that there are pros and cons to consider.

The upside of opening a six-month CD

CD rates tend to be higher than savings account rates because you’re making a commitment to keeping your money in the bank. Also, CD rates are guaranteed for the duration of your CD. If you open a savings account, you may find that after two or three months, you’re no longer earning as high an interest rate.

One reason it could pay to stick to a six-month CD in 2024 is that you’re not making too long a commitment. Let’s say you’re trying to save money to buy a car by the end of the year. You might put your cash into a six-month CD to avoid the temptation to spend it on something else. But at the same time, you’re not locking that money away for too long, so if you want to access it later in the year for that vehicle purchase, it should be available to you.

The downside of opening a six-month CD

If you stick with a six-month CD, you may not earn as high an APY on your money as with a longer-term CD. For example, as of this writing, Capital One is offering a 4.35% APY on a six-month CD. But if you open a 12-month CD, you can get an APY of 5.25%.

Also, you might specifically want to lock in a longer-term CD in 2024 due to the potential for rate cuts from the Federal Reserve. Inflation has been cooling nicely, so much so that the Fed was able to pause its interest rate hikes during its last three meetings. If inflation continues to calm down, the Fed may move forward with rate cuts in 2024.

That could be a good thing for consumers, as it could lead to more affordable borrowing opportunities. Lower rates could also provide relief for consumers with variable interest debt, such as credit card balances. But it could also lead to lower CD rates across the board.

If you open a 12-month CD at the start of 2024, you’ll be guaranteed a certain interest rate for the duration of the year. With a six-month CD, you might have to renew your CD mid-year, at which point interest rates could be lower.

Either way, if you decide to move forward with a six-month CD, take a look at what different banks are offering. Even though six months isn’t a super long period, you should still do what you can to lock in the most generous rate possible.

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