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Certificates of deposit (CDs) offer interest on your money in exchange for locking up your funds for a set period of time. CD terms can range from one month to several years, and in many cases, they can offer better yields than high-yield savings accounts and money market accounts.
That said, CD rates can vary depending on a few factors, including the financial institution, the type of CD, and your chosen term. So, what is a “good” CD rate these days, and how can you maximize your return? Here’s what you need to know.
CD rates are fairly high by historical standards due several rate hikes by the Federal Reserve in 2022 and 2023 to combat high inflation. During this time, the Fed raised rates 11 times, causing deposit account rates to shoot up.
However, the Fed cut the federal funds rate in September 2024 by 50 basis points, which means average CD rates are now beginning to fall.
Even so, CD rates vary widely across financial institutions. One way to determine whether or not a CD rate is good is to compare it to the national average. Here’s a quick look at the current averages for common CD terms:
Generally, a good CD rate would be one that is above the national average for that term.
As you can see, the highest average rates are for terms of around six to 12 months. However, they peak at just below 2%, which is not much compared to certain bonds and higher-risk investments.
But keep in mind that national averages don’t necessarily tell the full story on CD rates. Currently, some of the best CD rates today exceed 4% APY, while others are at rock-bottom. That’s why it’s important to compare your options before opening a CD.
See our picks for the best CDs on the market today>>
There are several variables that influence CD rates. Here’s what to keep in mind as you consider whether a CD is right for you:
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Federal funds rate: As mentioned, CD rates at many banks are influenced by the federal funds rate. When the Fed raises its rate, CD rates tend to follow suit, and vice versa.
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Bank policies: Banks use customer deposits to provide loans and improve profitability, but not all banks have the same strategies. Large banks, which may have sufficient capital and revenue from multiple sources, are typically less likely to offer high CD rates than online banks and other smaller financial institutions that want to attract more deposits.
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Type of CD: There are many different types of CDs from which you can choose. Some CDs may offer extra features, such as no early withdrawal penalty or a chance to get a higher interest rate after your initial deposit. However, these CDs typically offer lower APYs compared to standard CDs.
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Term length: CDs offer fixed interest rates, but those rates can vary depending on which term you choose. Traditionally, longer-term CDs offer higher yields, but when market rates are on the rise, short-term CDs may offer higher returns.
Keep in mind that setting CD rates isn’t an exact science, and each bank has its own approach. As a result, you’ll typically see a variety of rates from different banks, even for the same terms.
The best way to ensure you get the best return on your savings is by shopping around and comparing CD rates from multiple banks and credit unions. As you consider your options, here are some features to keep in mind:
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APY: The annual percentage yield (APY) on a CD is a more accurate representation of what you’ll earn in a year than the interest rate because it accounts for compound interest.
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Term: While you may be able to get a higher rate with a longer CD term, it’s important to consider when you might need access to the cash you’re depositing. In other words, focus on getting the best rate based on your time horizon.
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Minimum deposit: Depending on the bank, the minimum deposit for a CD can range from $0 to $10,000 or more. As a result, you’ll want to compare CDs that are accessible to you based on how much money you can set aside.
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Withdrawal penalties: Even if you don’t plan on withdrawing any money before your account matures, you’ll still want to understand how you’ll be penalized if things don’t go as planned and you need to withdraw your money.
Note that if you’re not comfortable with locking up your funds for several months or years to earn a higher rate, you could consider a no-penalty CD or high-yield savings account, which provides more liquidity. However, avoid using standard CD rates as your reference point if you’re pursuing those options.
Currently, CD rates of 6% are not generally available. Most of the highest CD rates today max out 5% APY and can be found on short-term CDs of a year or less. However, there are sometimes high-yield savings accounts that pay promotional rates close to 6%, particularly among credit unions. Periodically shop around and see what types of promotional rates are available near you.
The amount of interest you can earn in one year from depositing $10,000 in a CD depends on the APY and compounding frequency. Say you open a 1-year CD that offers 4% APY and compounds monthly. At the end of the year, you’d earn $407 in interest, for a total balance of $10,407.