If you're searching for a risk-free way to grow your money, certificates of deposit are a wise option. The best CD rates help you reach your savings goal while outpacing inflation.
How it works is you'll deposit money into one for a specified term. That term can range from three months to five years. If you need to end the term prematurely, your bank imposes an early termination fee.
With interest rates still above historical averages, CDs are an appealing opportunity for savers to lock in solid yields without taking on market risk. Whether you're building an emergency fund or setting aside cash for a short-term goal, today’s top CDs can help you preserve your principal while earning predictable growth.
Top-earning CD rates
One of the benefits of CDs is that you can choose a term that aligns with your savings goal. Say you're saving for a down payment on a home in five years, then you could choose a five-year CD to help you meet it.
CDs also feature shorter terms. This is ideal if you're not looking to tie up your cash for long but want to earn a higher rate without fear of stock market slumps or Fed rate cuts.
Moreover, for savers with larger deposits (think $50,000 or more), a jumbo CD can be a smart option. You'll earn APYs as high as 4.35%, with access to your money in six months to a year. That higher deposit can equate to you earning thousands effortlessly in a quick timeframe.
Here's a look at some of the top-earning CDs for each term:
Account |
APY |
Min Deposit |
Term |
|---|---|---|---|
4.00% |
$1,000 |
3 months |
|
4.15% |
$5 |
6 months |
|
4.00% |
$1,000 |
1 year |
|
4.00% |
$500 |
2 years |
|
4.05% |
$500 |
3 years |
|
4.05% |
$500 |
4 years |
|
4.00% |
$500 |
5 years |
|
4.35% |
$100,000 |
1-year jumbo CD |
|
4.00% |
$1,000 |
9-month no-penalty CD |
Pros of using CDs
Here are a few of the many benefits gained when using them:
- You earn a guaranteed return
- They feature fixed rates, so if the Fed cuts rates, you won't have to worry about diminishing earnings
- Many accounts offer FDIC insurance
- They require discipline to reach your savings goals since early termination penalties are high
CDs carry ample perks. If you would like to try one out, use this Bankrate tool to find the best CD terms and rates for your needs:
What are some cons to consider before opening one?
CDs are not the most flexible savings options. Keep these things in mind before committing to one:
- Returns are lower historically than what you could earn in investments
- They feature steep early termination fees of up to a year of earned interest for longer term CDs
- You won't have access to your cash until your term expires
If you want to try one out but are concerned about not having access to your cash, an alternative is a no-penalty CD. These CDs offer all the benefits of a regular one, but with the flexibility to withdraw your money when you need it.
Usually, you'll need to keep your cash in the account for the first week or month after opening it. Then, each bank has its own rules for withdrawing. Some allow you to do it all at once, while others limit you to one withdrawal each statement.
The other thing to keep in mind is that premature withdrawal means you won't maximize earnings. It's one thing if an emergency arises and you need access to it, but keep in mind that rates can drop when the Fed cuts rates, so withdrawing early could impact future earnings with lower APYs. This also a consideration if you want a shorter-term CD.
When should I use a CD instead of a high-yield savings account?
Your financial goals and cash flow will help you decide which works best for your needs. To demonstrate, if you have an emergency fund in a savings account and want to save for a vacation in one year, a one-year CD is a smart option.
Why? Because you already have money stored away in case of an emergency. This makes it less likely you'll need to break open the 1-year CD, so you can stay on pace to reach your goals.
However, if you require regular cash access, then a CD isn't the best fit. Instead, consider the best high-yield savings accounts, as you'll have access to your cash when you need it, without worrying about early termination fees. Once you build an emergency base, you can devote future savings goals to CDs.
How much can I earn with CDs?
It will depend on your initial deposit, term length and APY. If you have $100,000 you want to store in a jumbo CD with ECFU Financial for one year, you'll earn $4,350 effortlessly.
Meanwhile, if you deposit $5,000 into a one-year CD with Limelight Bank, you'll earn $200. While that number might not jump off the page, that's $200 you'll earn for doing nothing aside from opening the account. And that momentum can carry you to achieve more goals.
The best part is that many CDs renew automatically. Make sure to set a reminder on your phone a week before its maturity date to explore other options. And if you find none you like, you can let it ride.
Bottom line on the best CD rates
The Federal Reserve didn't cut rates at its January meeting. It gives savers some time to capitalize on higher rates.
And this is where CDs can help you. They'll earn you a high enough rate to outpace inflation, while protecting future earnings from rate cuts. Pay close attention to your cash flow and financial goals, as they can direct you to choose the right term that works for your needs.
