A certificate of deposit can be a safe place to park your cash investments to avoid stock market volatility. And, you can earn more interest than if you keep the deposit in a bank savings account. Of course, you need to use today’s best CD rates to lock in the highest income potential.
It’s been several years since CDs have been attractive for earning fixed income, but that’s changing thanks to rising interest rates. If you’re willing to exchange instant access to your cash from six months to five years, you can earn more passive income. And, maybe you might even consider building a CD ladder to earn a predictable income.
Maybe you’re looking for a safe way to invest $1,000. Parking your cash in a CD account can be just the answer you’re looking for when you want stability.
Table of Contents
- How do CDs work?
- What is CD laddering?
- Today’s Best CD Rates
How do CDs work?
Certificates of deposit (CDs) are fixed income investments. That means you know exactly how much income you’re going to earn every month. Unlike stock investments where share prices constantly fluctuate, CDs are very similar to a bank savings account or money market account.
The largest difference is that CDs are highly illiquid. If you invest in a one-year CD, you can’t withdraw your money penalty-free until the CD matures in one year. With a savings account or money market account, you can make a deposit today and a withdrawal tomorrow without penalty.
CD penalties mean you shouldn’t keep your emergency fund in a CD account. It doesn’t matter how high the interest rate is.
Because you can’t touch your CD account until the maturity date, banks usually offer higher interest rates. For example, the best online bank account interest rate might be 1.55% APY (annual percentage yield), but you can get a one-year CD for 2.50% APY.
And when you compare CD rates to a local brick-and-mortar bank with a 0.06% APR, your cash can earn significantly more interest in a CD account. Your cash can easily earn at least 1% more with a CD account.
One catch is, a bank may require a minimum deposit of at least $1,000, but each bank has a different policy. Some banks don’t require a minimum deposit to open a CD account. Just remember to only deposit cash that you don’t plan on using for the length of the CD term. Otherwise, it’s better to keep your money in a savings account for the additional flexibility.
What is CD laddering?
To diversify your CD account and to help ensure you earn the highest interest rates possible, you might follow a CD laddering strategy. The goal is to have a CD mature every year.
For example, instead of investing $5,000 in a single CD, you divide it among multiple CD rates. You might divide your balance evenly between one-year, two-year, three-year, four-year and five-year CDs. As your CDs mature, you reinvest in a five-year CD. Eventually, you’ll reach a point where all of your money is in long-term CDs.
In addition to building a CD ladder, you can also open additional CDs with new money for different durations to capitalize on higher interest rates. These terms can be shorter or longer depending on how soon you need access to the cash.
Today’s Best CD Rates
Each bank offers different interest rates for their CD products. Some might be more competitive for shorter-term CDs and others will be more competitive for longer-term CDs with five-year maturity dates.
You need to decide how long of an investment you want. Don’t forget that you can always reinvest your balance when the CD matures. Plus, you can open CDs with different maturity dates (i.e., CD laddering) to diversify your portfolio.
Also, make sure you compare the CD rates to the current savings account and money market interest rates. Although CD rates are usually higher, that’s not always the case.
1. CIT Bank
One of the best online banks for any interest-bearing product is CIT Bank. They have some of the highest interest rates you’ll find for CDs, savings accounts, and money market accounts. If you want to keep all your savings under one umbrella, CIT Bank is probably your best option.
Their best CD options are the following term CDs that yield up to 2.50% APY:
- 12-month (2.50% APY)
- 13-month (2.25% APY)
- 18-month (2.50% APY)
These three products each require a minimum initial deposit of $1,000. Once your term CD matures, you can renew the CD term for a new interest rate or withdraw the entire balance penalty-free.
Because we’re currently in an environment where interest rates are rising, it may be better to go with short-term CDs (12 to 24 months) instead of long-term CDs (60-month terms) because interest rates may be higher a year from now. Putting your money in a five-year CD means you can potentially earn more interest today but can earn less over the 5-year term if the 12-month interest rates keep rising.
You can also open a high yield savings account or money market account with a $100 initial deposit.
Learn how in our CIT Bank review!
Skip the minimum deposit requirement with a Barclays online CD. Your best option will be a CD with a 12-month to a 60-month maturity date.
Twelve-month CD rates start at 2.45% APY and 60-month CDs currently yield 3.00% APY. At the moment, Barclays has one of the most competitive CD rates for five-year terms. Because of the rising interest rate trend, you’re probably still better off going with a shorter term.
However, since Barclays doesn’t require a minimum initial deposit, you can easily create a CD ladder. You may choose to put more cash in the shorter term CDs and a smaller amount in a five-year term. Regardless of which CD terms you choose, you’re still earning more than keeping it in a savings account.
If you prefer an in-person bank, you can also open an account at BBVA. You have your choice of four CD terms:
- 12 months
- 15 months
- 18 months
- 36 months
All terms require a $500 minimum deposit. Although you can apply at your local branch, you’ll get a better rate online. Both the 12- and 15-month terms currently yield 1.85%. The 18- and 36-month terms both yield 2.00% APY.
If you also want a fee-free checking account, BBVA can be a good option that, too. You won’t pay a monthly fee for the checking account or your CD accounts, which means you earn interest on every deposit and don’t lose a penny to bank fees!
4. TIAA Bank
TIAA Bank offers three different types of CD products with competitive yields. Maybe you’ve never heard of TIAA Bank before, but you might know this financial institution by its previous name: EverBank.
TIAA has some of the highest interest rates for their banking products of any institution. In fact, TIAA has a 5% yield pledge promise that states the interest rate during your first year will always be among the highest 5% yield offers in the nation. Depending on which CD product you choose, you need to deposit between $1,000 and $5,000 to secure one of the best CD rates available.
You can get started with a Basic CD if you have $1,000 to deposit. Choose a minimum one-year term to get a rate of at least 2.20% APY. These CDs are also IRA eligible, which helps you avoid paying taxes on your earned interest. If you’re considering including CDs for your retirement portfolio, keep in mind that not every bank offers CD IRA accounts.
Bump Rate CDs
Another cool CD product from TIAA is the bump rate CD, which comes with a 3.5-year term (42 months) and a $1,500 minimum initial deposit. This product is especially appealing in a rising rates environment like we have today because if interest rates continue to rise, you can earn a higher interest rate. During the 3.5-year term, you have the option to bump your interest rate to a higher interest rate once.
Remember that shorter terms are usually better options when interest rates rise because you can earn more than if you’d locked your money into a five-year term.
You can only own one bump rate CD at a time, but it’s IRA-eligible just like the other TIAA cd products.
Yield Pledge CD
The third option is a Yield Pledge CD, which offers higher rates than a basic CD. If you have $5,000 to deposit at once, this can be the best rate for you. As its name implies, TIAA promises its rate on this CD is among the 5% highest rates in the U.S., according to the weekly Bankrate Monitor National Index survey.
Once again, you’ll want to select a minimum 12-month term to get an interest rate of 2.45% or better. Otherwise, it’s possible to get a better rate in a high yield savings account or money market account.
5. Live Oak Bank
When you have at least $2,500 to deposit in a CD, Live Oak Bank offers some of the best CD rates for 12-month terms. At 2.55% APY, you’re going to have a tough time finding a higher rate for this short term.
Live Oak Bank also offers an attractive 2.10% APY for six-month terms. This is one of the very few CDs where you can earn more than an online money market account or high yield savings account for the same timeframe. Other bank CDs with terms shorter than 12 months are less than 1%.
6. Capital One 360
Another online bank without a minimum deposit requirement is Capital One 360. Their 12-month CD yields 2.40% at the moment and their 60-month CD yields 3.00%. If you don’t have $1,000 or more to deposit at the moment, Capital One 360 is one of the most lucrative options for CDs and IRA CDs.
While you’re at it, you can also open a no-fee 360 Checking account that earns interest on your entire balance and gives you free access to 39,000 ATMs.
7. Synchrony Bank
You can also earn more on a Synchrony Bank CD compared to a regular bank CD account. Your minimum initial deposit for all terms is $2,000. CD rates go up to 3.00% APY. Going with a 12-month CD or longer is your best option as the annual percentage yield starts at 2.45%. It’s possible to open a CD for your IRA or non-retirement bank accounts.
Synchrony also offers competitive rates for high yield savings accounts and money market accounts. As a Synchrony Bank member, you also have complimentary membership in the Synchrony Perks program for special travel and leisure discounts.
8. Marcus by Goldman Sachs
You can get online high-yield CDs at Marcus by Goldman Sachs with a minimum $500 deposit. The 12-month rate yields a competitive 2.55% APY. What makes Marcus unique is the option for a six-year CD that currently yields 3.15%. Most banks offer a maximum CD term of five years. If you crave rate predictability, the six-year CD option can provide the ultimate peace of mind.
9. Ally Bank
Ally Bank offers three different CD rates for each term. How much you earn depends on how much you deposit. We’ll look at the current 12-month CD rates with the following opening deposit amounts:
- Less than $5,000: 2.10% APY
- $5,000 to $24,999: 2.25% APY
- More than $25,000: 2.40% APY
Other online banks offer more competitive rates for smaller deposits, but Ally CD rates are still highly competitive. Since banks can increase interest rates at any time, Ally offers a 10-day best rate guarantee. If Ally raises CD rates within 10 days of your opening deposit, your rate automatically increases to the new rate so you earn more interest!
To keep your cash in one place, consider Ally Invest. It offers some of the lowest trade commissions for stocks and ETFs. Read our Ally Invest review to learn more about this top rated discount broker.
10. Discover Bank
Discover Bank probably wins the award for offering the longest CD term. It has one available for 10 years. However, you still want to stick with a shorter term unless you anticipate interest rates to remain at historical lows for the next decade.
CD rates become attractive when you select a 12-month term with a 2.40% APY. The 10-year term has a 2.95% APY. All CD terms require a minimum $2,500 deposit.
11. Citizens Access
Citizens Access offers one of the highest rates for three-year CDs, at 3.00% APY! Other banks only offer this 3% rate on five-year terms. Now, you can enjoy the same rate and your CD matures two years earlier. Since CD rates are predicted to rise in the near future, you can renew your CD for a higher rate sooner instead of later.
You can also open a shorter CD term with a competitive rate. The 12-month CD rate is currently 2.50%. Since the minimum deposit is $5,000 for a Citizens Access CD, you should probably focus your dollars on the three-year term first. Of course, their shorter CD terms are also some of the industry’s highest rates too.
12. KS StateBank
A regional bank that also offers competitive multi-year CD rates is KS StateBank. And, they have a very reasonable minimum deposit requirement of $500 for their term CDs. These are some of KS StateBank’s most attractive CD rates:
- 1 Year: 2.40%
- 2 Year: 2.85%
- 3 Year: 3.10%
- 4 Year: 3.29%
- 5 Year: 3.37%
- 7 Year: 3.39%
KS StateBank might be your best option for CD terms that are between the three and seven years. These CDs are also available in your IRA too.
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What are the advantages of CD accounts?
The largest advantage of having a CD account is the opportunity to earn a higher interest rate than in a savings account or money market account. If you think that future CD rates will decline (like they did in 2006 and 2007), you can use CDs to lock in today’s higher rates for a longer period of time.
Another advantage of CDs is that you can fund them with tax-advantaged IRA dollars. This perk lets you earn a higher interest rate on your cash without paying more in taxes.
CDs can also be more stable than bonds. Depending on which bonds you invest in, CD rates can also be higher than bond yields too.
What are the disadvantages of CD accounts?
Like any cash investment, CD accounts aren’t a perfect place to park your cash.
Possibly the largest downside is the lack of liquidity. Your deposit cannot be withdrawn until the end of the CD term. If you withdraw your money early, you will have to pay an early withdrawal penalty.
Another downside of CDs is that the income potential of short-term CDs and money market accounts can be higher than the best three-year or five-year term CD today. If bank rates are continuing to increase, you might be better off going with a shorter CD term because you can earn more interest by renewing the CD at the higher future rate. Most banks offer a CD rate calculator to help you project your future earnings.
Can you withdraw cash from a CD?
It’s possible to withdraw your earned interest and original deposit from your CD at any time but you may have to pay a penalty. In most cases, you can withdraw your CD interest penalty-free with each monthly interest payment. But, keeping your interest in the CD account means it will earn compound interest. You might choose to withdraw the interest if your bank account interest rate is higher.
You will most likely pay a penalty to withdraw any portion of your cash deposit before your CD matures. Some banks offer a 10-day grace period beginning the day your initial deposit is made. Otherwise, you can expect to pay the following penalty:
- 90 days interest for CD terms shorter than 12 months
- 180 days interest for CD terms between 12 months and 48 months
- 365 days interest for CD terms longer than 48 months
Even if you make the early withdrawal a week before the CD matures, you still have to forfeit the designated interest above.
Can you make recurring deposits in a CD?
Recurring CD deposits aren’t allowed. Some banks offer a supplemental deposit during the first 10 days, but you will need to open a second CD account after this window closes. One of the reasons for this rigidity is that CDs offer predictable interest payments for the entire term. You invest in a CD to hedge against potential interest rate fluctuations in your regular bank account.
So, you open additional CDs to guarantee a fixed interest payment on that deposit amount. Depending on which bank you choose, you might be able to invest in a bump rate CDs that lets you increase the interest rate on your entire balance once during the term. You can’t add new funds, but you don’t have to open a second CD account either.
Are CDs better than savings accounts?
CDs are only a better option than savings accounts in these circumstances:
- The interest rate is notably higher (preferably 0.5% or more)
- You don’t need instant access to the cash
- You want an IRA CD instead of a taxable bank account
In almost every case, CDs are worth opening when the term is at least 12 months long. You can easily find a rate that’s at least 2.40% APY. In comparison, online high yield savings accounts and money market accounts offer rates up to 1.85%.
Most six-month and nine-month CDs only offer an interest rate up to 0.90%. With these CD products, you’re making less money than you would in a high yield savings account, and it’s tied up for the duration of the CD term too.
Are 12-Month CDs better than longer CD terms?
This answer depends are two factors:
- Are future CD rates increasing or decreasing?
- Do you need to access to your cash sooner or later?
Depending on your bank, 12-month CD rates might also be higher than 36-month or 60-month CD rates, but that’s not always the case. Some banks offer higher rates for longer term CDs than 12-month CDs.
Because interest rates are rising and there might only be a marginal difference in CD rates, it might be better to use a shorter term. You earn slightly less interest, but you have more withdrawal flexibility. If future rates rise, you might earn more interest overall.
Are CDs FDIC-insured?
Yes. CDs and IRA CDs are both FDIC-insured up to $250,000 just like your checking, savings and money market accounts. Most banks place a maximum deposit amount that doesn’t exceed the $250,000 FDIC coverage limit. So, you never have to worry about having a CD that’s too large to insure!
If you don’t get a CD from one of the banks mentioned above, make sure the financial institution is still FDIC-insured (banks) or NCUSIF-insured (credit unions). It’s highly likely that they are.
Are local bank CDs better?
This article focuses on the best CD rates that are open to anybody. Your local bank or credit union might offer similar or better CD rates. However, membership might be restricted to a particular geographic region or people who work for a specific employer.
in most cases, online banks offer the best CD rates because they have fewer operating expenses. Because there are fewer expenses, they can pass the savings on to online savers with higher interest rates on deposits than local banks.
You can always use this list to quickly compare the best online CD rates with your local bank to choose the best option.
Bank CDs can be one of the best ways to earn more interest on the bank deposits you don’t need immediate access too. In most cases, you will get the best CD rates from an online bank with a minimum 12-month term. And, several banks don’t require a high minimum deposit, which means you can quickly earn more on your extra money.
What’s your ideal CD term length? Are you planning on building a CD ladder?