Why CDs Are No Longer the Obvious Choice | Zachary Bainter
By: Zach Bainter
CDs have long been the go-to for people who want safe, predictable returns. However, the alternatives to CDs can be more compelling in the right situation, and taxes must be a consideration.
To illustrate this, let’s look at 3-year CDs. The top ones pay about 4.5% to 4.85% annually, usually offered from an online bank. While the CD rates might look attractive, it is important to consider your after-tax return. CD interest is taxed as ordinary income in the year interest is accrued, whether you withdraw the money or not. For those in higher income tax brackets, this means you are paying taxes on a significant portion of this interest rate.
As a financial planner, it is our job to help inform clients that there are other options for safe money. Given the current interest rate and economic environment, additional conservative options can pay you more after considering your tax situation.
Treasury bonds are backed by the U.S. government and pay about the same as a CD. However, states do not tax the interest. As of this writing, the week of October 12th 2026, 3-Year U.S Treasury bonds are yielding ~4.9% annually.
Bond funds now pay about 5% annually. While bonds can fluctuate in value compared to CDs, there are shorter and intermediate funds depending on your timeline and risk tolerance making some funds less volatile than others. The starting yield today is a nice buffer from a potential rise in rates. When it comes to taxation, corporate bond interest is taxed as income, like CD interest. Municipal bond interest tends to be fully exempt from taxes.
Fixed annuities are insurance contracts that can guarantee 5.6% annually for a 3-year contract. Taxes are deferred so they are delayed until you withdraw. There are significant penalties if you break the contract, unlike CDs. However, that is the trade-off -higher rates for an illiquid solution. For those who are near retirement especially, these can be great solutions to explore that allows the annuity income to be deferred until you are in a lower income tax bracket.
With interest rates being at multi-decade highs, and the unique period we are in where some short-term bond investments pay more than a money market fund, now is a great time to talk if you have money in the bank.
Gerber Kawasaki Wealth & Investment Management is an investment advisor located in California and is registered with the Securities and Exchange Commission (SEC).
Registration of an investment advisor does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. Gerber Kawasaki only transacts business in states in which it is properly registered or is excluded or exempted from registration requirements. Additional information about the firm is available on the SEC’s Investment Adviser Public Disclosure website at adviserinfo.sec.gov.
Zachary Bainter is a Financial Advisor of Santa Monica, California-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately ~$5.16B billion in assets under management and assets under advisement as of 10/05/26. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This material is for general information only and is not intended to provide specific tax or investment advice. Consult your tax professional regarding your individual situation. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Readers shouldn't buy any investment without doing their research to determine if the investments are suitable for their situation. “All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results."
