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- PERSONAL FINANCE NEWS
- CD NEWS
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KEY TAKEAWAYS
- CDs are paying near 20-year highs—offering top rates up to 5.51% APY with essentially no risk.
- While returns on high-yield savings accounts will drop once the Federal Reserve starts cutting rates, a CD's rate is locked and guaranteed for months or years into the future.
- A CD's early withdrawal penalty is a useful deterrent to spending your savings on a whim.
- Finding a top rate in any term is easy when you use our daily rankings of the best nationwide CDs.
It's a great time to open a CD, given the amount you can earn, predictions for future interest rates, and how CDs can be a motivating savings tool. Here's the scoop on why this month is an excellent time to make the jump into a CD.
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Reason 1 - Today's CD Rates Are Sky High
Over the last 20 years, there's hardly ever been a better time to put money in a certificate of deposit (CD). That's because you can earn historically high returns—over 5% in most CD terms—with virtually no risk or uncertainty. That's remarkable when you consider that at the start of 2022, the top nationwide CD rates ranged from just 0.5% to 1.5% APY.
CD rates hit a nationwide peak last fall. Since then, the threat of a Federal Reserve rate cut has caused CD yields to soften a bit. But as you can see below, the best CD rates are still lingering near their 20-year high-water marks. With the Fed's first rate cut now likely several months away, CD rates have mostly plateaued at their still-impressive levels.
It doesn't matter if your CD is held at a bank or a credit union, or if the institution is big, medium, or small. Federal protection applies equally to all FDIC banks, regardless of size, and the same is true for NCUA-member credit unions.
Reason 2 - Your Savings Account Rate Won't Last, But a CD Rate Will
The 2023 surge in savings and CD rates was triggered by the Federal Reserve's historic rate-hike campaign, which raised the federal funds rate 11 times between March 2022 and July 2023. The Fed's goal was to tamp down inflation that had reached a 40-year high of 9.1% after the pandemic.
The Fed's rate increases have so far brought inflation down considerably, to a recent reading of 3.4%. As a result, the Fed is now watching and waiting for the right time to start reducing the federal funds rate. While it's unclear when the Fed will feel confident enough to begin lowering its benchmark rate, CME Group's FedWatch Tool shows that most market watchers expect there will be one or more rate cuts in 2024.
The reason this is important is that banks and credit unions will start to cut the rates they offer on savings accounts and new CDs as soon as it seems clear the Fed is going to make a rate cut. This means the money you hold in a high-yield savings account likely won't pay the same rate later this year as you're earning today.
But CDs you open before the Fed is ready to cut rates will have a fixed rate that is yours for the full term of the CD. So even if the Fed were to cut rates three times this year and cut further in 2025, your existing CD rate is guaranteed and cannot be lowered.
That makes now a good time to shop our daily ranking of the best CD rates and open a certificate with as long a term as you can confidently commit your funds to. Currently, you can score a rate of 5% or better for terms that last up to 3 years, or in the upper-4% range for terms of 4 to 5 years.
Can't commit that long? That's okay. A 1-year or 18-month CD will still deliver benefits if the Fed makes even one rate cut this year. And the more cuts the Fed makes, the bigger the earnings advantage you'll enjoy for opening that CD while rates were high.
Reason 3 - CDs Can Help Keep Your Savings Saved
For anyone who struggles with the temptation to withdraw money from savings and spend it on unplanned purchases, CDs offer an additional advantage. All banks and credit unions that offer CDs have an early withdrawal penalty. This fee is triggered if you find you need to withdraw your CD funds before the CD's maturity date. The penalty can be mild, such as a few months' worth of interest, or can be quite harsh, like all of your earned interest.
Faced with a loss of earnings from cashing in too soon, many savers will be motivated to keep the CD funds on deposit until the term ends. This is different from a high-yield savings account, which allows you to freely withdraw funds whenever you like. So if you want to make sure your savings stay in savings, CDs can be a useful vehicle for you.
How We Find the Best Savings and CD Rates
Every business day, Googlawi tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account's minimum initial deposit must not exceed $25,000.
Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.