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John Egan
John Egan
Banking Expert
John is a freelance writer for Newsweek’s personal finance team. He has contributed personal finance articles to outlets such as Forbes Advisor, Investopedia, Bankrate, USA Today Blueprint, Capital One, Experian and NJ.com. John, based in Austin, Texas, is the author of The Stripped-Down Guide to Content Marketing.
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Claire Dickey
Claire Dickey
Senior Editor
Claire is a senior editor at Newsweek focused on credit cards, loans and banking. Her top priority is providing unbiased, in-depth personal finance content to ensure readers are well-equipped with knowledge when making financial decisions.
Prior to Newsweek, Claire spent five years at Bankrate as a lead credit cards editor. You can find her jogging through Austin, TX, or playing tourist in her free time.
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To the delight of savers, CD interest rates have soared in the past couple of years, shooting past 5% or even 6% APY. But savers could see CD rates dip as the Federal Reserve considers interest rate cuts in 2024.
For now, CD rates remain attractive. In anticipation of lower rates in 2024, experts suggest taking advantage of today’s higher rates by opening a short-term or long-term CD. A short-term CD comes with a term that lasts around one year or less. Meanwhile, a long-term CD period generally lasts at least three years.
Date | 1-year CD | 3-year CD | 5-year CD |
06/03/2024 | 1.77% | 1.39% | 1.40% |
05/27/2024 | 1.82% | 1.42% | 1.43% |
05/20/2024 | 1.79% | 1.40% | 1.40% |
05/13/2024 | 1.77% | 1.39% | 1.39% |
05/06/2024 | 1.77% | 1.42% | 1.43% |
04/29/2024 | 1.73% | 1.40% | 1.41% |
04/22/2024 | 1.74% | 1.41% | 1.42% |
04/15/2024 | 1.74% | 1.41% | 1.42% |
04/08/2024 | 1.74% | 1.41% | 1.42% |
04/01/2024 | 1.73% | 1.41% | 1.41% |
03/25/2024 | 1.74% | 1.40% | 1.41% |
03/18/2024 | 1.73% | 1.42% | 1.43% |
03/11/2024 | 1.74% | 1.41% | 1.43% |
03/04/2024 | 1.72% | 1.41% | 1.43% |
What Is a CD?
A certificate of deposit (CD) is a type of savings account that holds a set amount of cash for a certain period of time, such as six months or three years. Interest rates for CDs typically exceed those for regular savings accounts.
In exchange for keeping your money in a CD until it “matures,” you receive the original deposit plus any interest you earned. So, you might open a one-year CD with a $10,000 initial deposit and then receive the $10,000 plus interest when you cash in the CD at the end of the one-year period.
Although a CD normally pays a higher interest rate than a traditional savings account, it may come with a major disadvantage. If you need to withdraw money from your CD before it matures, you might be hit with a financial penalty, such as the loss of earned interest.
Types of CDs
A variety of CDs are available, such as:
- Traditional CD: A traditional CD is a standard CD with a fixed interest rate and fixed maturity period.
- Jumbo CD: A jumbo CD acts like a traditional CD, except that it usually pays a higher interest rate than a traditional CD and requires a bigger initial deposit.
- No-penalty CD: A no-penalty CD does not charge a penalty for withdrawing cash before the end of the CD’s term.
- Step-up CD: A step-up CD sets a schedule for interest rate increases during the life of the CD.
- Bump-up CD: A bump-up CD allows you to boost the interest rate if rates rise during the CD’s term.
- High-yield CD: A high-yield CD offers some of the best fixed interest rates among savings accounts.
- Add-on CD: Unlike a typical CD, an add-on CD enables you to add money to a CD after making the initial deposit.
- Bank CD: A bank CD is purchased from a bank.
- Brokered CD: A brokered CD is generally purchased from an investment brokerage firm.
- IRA CD: An IRA CD is an individual retirement account made up of CDs.
Why Should You Open a CD?
In general, a CD can be a good option for earning a fixed interest rate that’s normally higher than you’d get with a savings account. It’s considered one of the safest ways for Americans to save money, primarily because deposits are federally insured up to a certain dollar amount.
Pros
- CDs often provide higher interest rates than regular savings accounts do
- During the life of a CD, the interest rate normally remains fixed. By contrast, the rate for a typical savings account can vary
- Unlike money invested in stocks, money deposited in a CD is insured up to a certain dollar amount
Cons
- A CD generally locks up your money for a certain period of time, such as six months or three years. If you withdraw money before that period ends, you normally lose some of your money in the form of a financial penalty
- In some cases, the interest rate for a CD might not keep pace with the inflation rate
- Returns for a CD might be lower than returns for investments like stocks and bonds
How to Choose the Best CD for You
Not all CDs and financial institutions are alike. Here are seven tips for choosing the best CD for you:
- Look at the terms. The length of time that your money will remain in a CD before it matures can range from months to years. Figure out which term you’re most comfortable with. A short-term CD will lock up your money for less time than a longer-term CD does.
- Review the interest rates. To maximize the returns on your money, look for a CD with the highest annual percentage yield (APY).
- Figure out the fees. To keep the value of your CD from being watered down, be sure you understand what fees you’ll be charged.
- Explore the types of CDs. Various kinds of CDs are available. Pick the type that most closely matches your needs. For instance, you might pick a no-penalty CD if you suspect you might need penalty-free access to cash before the CD term ends.
- Check out the bonuses. Some financial institutions might offer incentives for signing up, such as a $200 sign-up bonus for opening a CD.
- Investigate the insurance. Most CDs are insured by either the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). To safeguard your money, open a CD only at a financial institution with FDIC or NCUA insurance.
- Consider the customer service. If you’re leaning toward setting up a CD at a financial institution you haven’t done business with, make sure you dive into its track record for customer service.
Vault’s Viewpoint: CD Rate Trends for 2024
As the Federal Reserve raised target interest rates in 2022 and 2023, financial institutions raised interest rates on CDs too. And because inflation remains higher than the Fed would like, it appears that interest rates may take some time to tick down. The interest rate environment for CD holders should remain attractive in the meantime.
The Fed’s rate-setting committee decided at its May meeting to keep rates flat, but it could still carry out rate cuts before year’s end. The number and timing of rate cuts depends on economic data, which the committee uses to inform its decisions. The committee’s actions regarding the Fed’s benchmark interest rate typically influence interest rates for CDs.
Given the possibility that CD rates could decline in 2024, experts recommend locking in high rates now with a short-term or long-term CD.
Frequently Asked Questions
Is It Smart To Invest in a CD Now?
Investing in a CD now could earn you 4% to 5% or more on your money. Whether that’s the smart choice for you right now depends on your goals and your timeline. If you have a specific time frame in mind (such as a few months to a few years) and don’t anticipate needing those funds soon, then it could be smart and safe to invest in a CD now.
What Is the Biggest Negative of Putting Your Money in a CD?
For most people, the biggest drawback of a CD is that it locks up your cash for a set period of time. Unless you choose a no-penalty CD, you’ll typically have to pay a penalty if you want to withdraw your funds before the CD matures. No-penalty CDs often have lower APYs than other CDs, but higher than some savings accounts.
How Are CD Rates Determined?
Many factors can affect CD rates, including the individual bank or financial institution, the length of the CD term, the amount of funds you’re depositing and the overall interest rate environment.
Methodology
Bankrate displays two sets of rate averages that are produced from two surveys conducted by Bankrate: one daily (“overnight averages”) and the other weekly (“Bankrate Monitor averages”).
The rates on this page represent Bankrate’s overnight averages. For these averages, APRs and rates are based on no existing relationship or automatic payments.
Newsweek writer Mary Beth Eastman contributed to this post.
More From the Vault: Guide to CDs
1 What Is a Certificate of Deposit (CD)? And How Does it Work?
2 How to Open a Certificate of Deposit (CD)
3 CD Early Withdrawal Penalty: Fees Can Be Hefty, but Can Also Be Avoided
4 What Is a CD Ladder? A Little Extra Work for Long-term Rewards
5 Current CD Rates for the Week of June 10, 2024
6 Best CD Rates of June 2024: Up To 5.50%
7 Best Jumbo CD Rates of June 2024
8 Best No-Penalty CD Rates of 2024
9 Best IRA CD Rates of June 2024
10 Best Bump-Up CDs of 2024
Editorial Note: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, hotel, airline or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post. We may earn a commission from partner links on Newsweek, but commissions do not affect our editors’ opinions or evaluations.
John Egan
Banking Expert
John is a freelance writer for Newsweek’s personal finance team. He has contributed personal finance articles to outlets such as Forbes Advisor, Investopedia, Bankrate, USA Today Blueprint, Capital One, Experian and NJ.com. John, based in Austin, Texas, is the author of The Stripped-Down Guide to Content Marketing.
Read more articles by John Egan