If you choose to stay "safe," your goal should be to minimize the damage from low rates and keep your options open should rates rise. "
And in this environment, IMO, one option for this might be a longer term CD which has a relatively benign interest penalty (say no more than three months) for early withdrawal. Then, if rates rise considerably (or an emergency requires access to the cash), the penalty is probably more than offset by the higher yield you received while the CD was in force, especially if you held it for a year or more already.
I'm planning to retire next year, and I recently moved a small wad of money to an Ally Bank IRA. I have 2 accounts set up, one a 2 year CD (1.2% or so) and the other savings (.85%). Interest rate is minimal, but the comfort in knowing this will help me keep my plan on track even with a market downturn is worth a heckuva lot.
Case in point to the above: A 5-year Ally Bank CD is currently yielding 1.73%. Their one-year CD yields 1.01%. The interest penalty for early withdrawal is 2 months interest. Let's say you make a $10,000 deposit in each, and withdraw each after a year.
For simplicity I will ignore the compounding of interest (monthly or quarterly), as they are trivial for this duration and at these low rates.
With the 1-year CD you'd have $10,101 with the assumption above at the end of the year. There is no penalty; the CD has matured. With the 5 year, the interest is $173, but you lose 1/6 of it (two months out of 12) so it is about $144 after the penalty. Hold for longer than one year, and the case for the 5-year is more compelling the longer you hold it.
With only a 2 month interest penalty it seems hard to justify not reaching for the 5-year if you feel confident you'll hold the CD for, say, 6 months or so. And even if rates spike before then, the current rate is so low that the lost of two months' interest is so trivial that it shouldn't be an impediment to cashing it out early, eating the penalty, and reupping at a higher rate.
And Ally, in fact, may be among the "best in show" for this strategy because not only do they have very competitive rates, but their early withdrawal penalty (2 months interest regardless of duration) is among the most benign I've seen anywhere.