SuperMoney

Best CD Rates | December 2022

CDs offer some of the highest interest rates available for federally insured bank accounts, and the rate is guaranteed for the duration of the CD term. But who provides the best rates and terms? Find out with SuperMoney's CD comparison tools.

SuperMoney's Guide to the Best CD Rates

Are you looking for a low-risk, low-maintenance way to build your savings? Try investing your savings in CD accounts. A CD, or certificate of deposit, is a high yield savings account with a fixed interest rate and a maturity date. Accordingly, CDs offer a great way to grow your savings without having to manage a more sophisticated investment portfolio. But how can you get the best CD rates? Read on to learn everything you need to know to maximize your returns.

What is a CD?

Certificates of deposit (CD) are savings accounts that hold a fixed amount of money for a set period of time: typically six to five years. They are considered to be one of the safest savings options because they are federally insured up to $250,000. This guide will help you find the best cd rates available.

A CD is like a regular savings account with one important difference. With a savings account you can withdraw your money whenever you want without a penalty. But with a CD, you agree to leave your money in the account for a specific period.

Because the bank knows the money isn’t going anywhere, it’s willing to offer a higher APY on CD accounts. If you access the money during the preset period, you’ll usually have to pay a penalty, which can be a flat fee or a percentage of your interest earned.

You can get a CD for just a few months or as long as a decade. The right term length depends on when you think you’ll need the money. And, of course, the longer the term, the higher the interest rate.

The main advantage is you don't risk the money you deposit in a CD, and you typically get a little more interest than with a savings account. You are basically trading safety for the earning potential of riskier assets, such as stocks. However, when the due date comes, you know the money will be there.

CDs are great for people who want to earn sme interest but don’t want to take any of the risks of investing in stocks and bonds. However, you won’t want to put your money in a CD, if you think you’ll need the money soon.

A CD, or certificate of deposit, is a savings account with a fixed interest rate and withdrawal date. It comes with a guaranteed return and earns higher interest rates than most checkingsavings, and money market accounts.

CDs typically come with specific terms that limit your access to your money for a set period of time. If you invest in a year CD, you'll have to wait one year before withdrawing your money. If you invest in a seven-year CD, you'll have to wait even longer -- but in exchange, you'll earn much higher interest rates.

In most cases, if you withdraw your money before the agreed-upon term limit, you'll incur early withdrawal penalties. Most CD accounts also require you to put down a certain minimum deposit, ranging from a few hundred to several thousand dollars.

How does a CD work?

A CD is one of the simplest investment options available. Here is how CDs work.

  1. You deposit your money for a set period and earn interest on those funds.
  2. Typically, the interest is compounded and added to the principal.
  3. Once the deposit period ends, you can withdraw your money with interest.

CDs usually have a higher APY than other deposit accounts because the bank knows how long you’ll be keeping your money in the CD. In most cases, the bank will charge you a fee if you withdraw the money early.

CDs are a popular choice for people looking for long-term investments with a low-risk tolerance and who have capital preservation as their main goal.

Usually, the longer the term, the higher your APY will be. However, remember that most CDs will charge you an early withdrawal fee. So, choose your CD length wisely.

Answer these questions before investing in a certificate of deposit

Certificates of deposit can be a good choice for people of all ages who want a low-risk investment to park money they don’t plan to spend for a while. It is particularly useful for people who have a specific goal, such as buying a car or a house, and don’t want to touch the money (or even worse, lose it) until they are ready to buy.

If you don’t need to access your money for a while and it is just going to be sitting in your checking account, you will often earn more money if you deposit it in a CD.

There are two questions to answer before deciding if a CD is a good choice for you.

First, what is your time horizon? In other words, how soon will you need your money? Consider whether you have sufficient emergency savings if you lose your job or face an unexpected expense. As long as you don’t expect to need your money within six months, a CD may be a good choice.

Where are interest rates heading? The interest rate trend can help you decide the length of the term you should choose. When rates rise (typically, this means inflation is rising), it may be a good idea to invest in short-term CDs. On the other hand, if rates are dropping -- which often happens when the economy is not doing well -- longer CD terms may be the smarter investment because you can lock in a higher rate.

How to compare the rate of return of CDs

The first thing you need to do when considering a CD is to check two basic numbers: the APR and the APY of the CD. These numbers are very similar and, therefore, often confused.

The APR, or annual percentage rate, is the interest rate the bank is offering on the CD.

The APY, or annual percentage yield, is the interest you will earn over the CD term when you consider compounding.

Obviously, comparing the APY and APR of a CD is usually only important when dealing with CDs that have a longer than 12 months term.

What is compounding?

In a nutshell, compounding is how investments grow over time. To illustrate, imagine you invest $100,000 in a CD with a 3-year term that offers an APR of 2% a year. You will earn $2,000 the first year. In the second year, you will earn $2,040, which is 2% of the new total balance of $102,000. In the third year, 2% of $104,040 will amount to $2,080.80.

Notice how the investment grows every year since the APR of the total amount also grows every year. That is compounding.

How to invest in CDs in three steps

If you have decided that a CD is a good investment for you, follow these steps.

1. Pick the right term for you. Decide how long you want to lock your cash into the CD.

2. Choose the right type of CD for you. To illustrate, if you are going for a long-term CD (say 36 months) and you are concerned that rates may increase, consider investing in a bump-up CD. Bump-up CDs will increase their rate of return if the market improves. Or maybe you are concerned about the penalty fee if you are forced to dip into your CD. In that case, consider a liquid CD, which provides much more flexibility.

3. Check the rates. Once you know the term and type of CD you want, compare the best rates offered by banks and credit unions.

In many cases, it pays to use a CD investment technique called “laddering.”

What is CD laddering?

CD laddering is an investment strategy that requires you to set up multiple CDs at one time with staggered maturity dates. Rather than cashing out a CD when it reaches maturity, you can roll it over into a new one and continue to earn interest. For instance, if you have $10,000 to invest, you could arrange a CD ladder by spreading out your money in the following way:

  • $2,000 in a one-year CD
  • $2,000 in a two-year CD
  • $2,000 in a three-year CD
  • $2,000 in a four-year CD
  • $2,000 in a five-year CD

Once your one-year CD matures, you can reinvest that money into a new five-year CD. You can continue this pattern when the second-year CD ends. Eventually, you'll get to the point where your ladder comprises long-term CDs that allow you to maximize your interest. With this strategy, you can benefit from the higher interest rates that come with longer-term investments and enjoy access to your money at short-term intervals.

What are the advantages of laddering?

There are three main advantages to laddering.

  1. You can access your cash penalty-free every time a CD matures.
  2. There is a good chance you will earn higher interest rates when you reinvest.
  3. Higher interest rates all around because you are investing in CDs with longer terms.

What do you do once a CD matures?

When a CD matures, you get your principal back plus interest. Most financial institutions will call you before your maturity date and ask you what you want to do with your money. You can either withdraw your money and look for another investment or renew the same CD for the same term.

Once the CD matures, a grace period starts. During this grace period — which usually lasts between seven and 10 days — you can choose to either withdraw the funds in your account or allow the CD to automatically renew for another term or open a CD with a new term.

It’s smart to think carefully about what you will do with the money before it matures. Repeatedly rolling over the money in a short-term CD will normally earn less interest than if you had invested in a long-term CD from the very beginning. One option that allows you to maximize the returns of long-term CDs and the flexibility of short-term CDs is to use an investment strategy called the CD ladder.

When should you get a CD?

CDs are not for everyone. They make sense for people who want to earn some interest but cannot afford the risk of losing money.

Investing in a CD only makes sense when you have the financial stability to lock some of your savings for a period of time. CDs come with substantial early withdrawal fees. So, you could easily lose any interest earned if you are forced to withdraw your money earlier than expected.

Still, CDs may be a good option for people who don’t like surprises and have a very low tolerance to risk. It’s worth emphasizing that the returns on CDs are low. In the current market, they are likely to be below the rate of inflation. This means your investment in the CD will probably lose value. The advantage is that you know exactly how much you will earn in interest, so there is no risk of actually losing money.

Certificates of deposit work well for short-term financial goals, like saving for a down payment on a house or a new car. Depositing your money in a CD for 12 months or two years is one way to avoid the temptation of dipping into your savings.

However, if you prefer to keep a lot of your money in a savings account, you could make more from locking your savings in CD with a higher APY. This is an excellent option if you think the rates on savings accounts will continue to drop.

What CD term should you select?

CDs come in a wide range of terms. Usually, the longer the term, the higher the APY. However, think twice before locking your money in a CD with a long-term if you may need to dip into your savings before the maturity date. Remember that most CDs come with expensive early withdrawal penalties.

You should also consider the CD market environment when choosing a term. If rates are on the rise, you may be better off investing in shorter terms, so you can reinvest earlier and benefit from the higher rates.

Are CDs good for small investors?

CDs can be a good option for small investors because they don’t require a large investment. Some CD options don’t have a minimum deposit requirement. However, the APYs are very low. So you may be better off investing small amounts in a high yield checking account, which can have APYs as high as 5%.

On the other hand, if you have zero-risk tolerance, want a fixed rate of return on your savings, and you only have a small amount to invest, CDs can be a valid option.

Are CDs a safe investment?

Investing in a CD that is FDIC-insured or NCUA-insured is as safe as it gets. The backing provided by a credit union insured by the National Credit Union Administration (or NCUA) or a bank backed by the Federal Deposit Insurance Corp (FDIC) guarantees you will not lose the investment you made up to the insured limits. This is because your money is backed by the full faith and credit of the United States government. Of course, you must keep within the National Credit Union Administration, and FDIC limits or the insurance on your deposits will not protect you. The standard limit is $250,000 per depositor, per bank, or credit union.

What CD terms should you select?

CDs come in a wide range of terms. Usually, the longer the term, the higher the APY. However, think twice before locking your money in a CD with a long-term if you may need to dip into your savings before the maturity date. Remember that most CDs come with expensive early withdrawal penalties.

You should also consider the CD market environment when choosing a term. If rates are on the rise, you may be better off investing in shorter terms, so you can reinvest earlier and benefit from the higher rates.

Are CDs good for small investors?

CDs can be a good option for small investors because they don’t require a large investment. Some CD options don’t have a minimum deposit requirement. However, the APYs are very low. So you may be better off investing small amounts in a high yield checking account, which can have APYs as high as 5%.

On the other hand, if you have zero-risk tolerance, want a fixed rate of return on your savings, and you only have a small amount to invest, CDs can be a valid option.

Are CDs a safe investment?

Investing in a CD provided by a credit union insured by the NCUA or a bank backed by the FDIC is as safe as it gets in the investment world. This is because your money is backed by the full faith and credit of the United States government. Of course, you must keep within the FDIC or NCUA limits, or the insurance on your deposits will not protect you. The standard limit is $250,000 per depositor, per bank, or credit union.

What are the benefits of a CD?

CD interest rates are typically higher than you could get from a traditional savings account. And because most CDs come with a fixed interest rate, putting your money in a CD account provides a guaranteed return. They are safe, stable, and more profitable than savings accounts. And they require no hands-on maintenance, making them easier to manage than a more diverse investment portfolio.

What are the drawbacks?

Although they provide higher returns than savings accounts or money market accounts, CDs are less profitable than higher-risk investments like stocks and bonds. Many CD accounts limit your access to your money, punishing early withdrawal with costly withdrawal penalties. And to secure competitive interest rates, you may have to put down a larger minimum deposit than you can comfortably afford.

What are the best CD rates right now?

If you’ve decided that a CD is right for you, now it’s a matter of finding the one that offers the best rates and other features. You may be tempted to head down to your local credit union or bank. But if you don’t shop around, you might end up with a lower APY than you could earn elsewhere.

To help you narrow down your choices, we’ve put together a list of the best CD rates on the market today. Since rates can vary depending on how long your term is, we’re going to show you some rates based on a one-year term for February 2018.

Alternatives to certificates of deposit

CDs can be an excellent option if you're looking for a low-risk liquid investment vehicle, but there are alternatives to consider. If you're planning to open an online savings account, you may also want to consider other options, such as savings accounts, money market accounts, and high-yield checking accounts.

Savings accounts

Savings accounts offer similar interest rates, higher flexibility, and are also insured by the FDIC. They can be a risk-free option if you're investing money you will need for a specific purpose, such as a down payment on a mortgage or a new car, and you want the ability to access your money at any time.

Frequently asked questions about CD accounts

Are CD accounts better than savings accounts?

That depends on what you're looking for! Generally, CD accounts offer much higher interest rates than savings accounts. However, that high interest comes at the expense of flexibility. When you invest in a CD account, you're promising to keep your money in the account for a set period (typically 6 months to a few years). If you need to tap into the account to pay for an unexpected expense, you'll incur an early withdrawal penalty.

What are the pros and cons of investing in a CD?

A CD account provides a safe place to store your money and earn better returns than you would from a savings account. CD rates are higher than savings account interest rates and offer guaranteed returns. Plus, it's lower-maintenance than managing a portfolio of more high-risk investments, like stocks and bonds.

However, those benefits come with a price. When you invest your savings in a CD account, you lose the flexibility you retain with a traditional savings account. If you try to withdraw your money early, you'll have to pay a withdrawal penalty. And although CDs can win you a higher interest rate than you'd get from a savings account, they're not quite as high-yield as riskier investment opportunities.

First, we need to say that comparing a money market account and a CD is not an apples-to-apples comparison, like when you´re comparing the APR on a credit card. A money market account is structured differently, so you need to dig a little deeper to work out the best choice for you.

A money market accounts (MMAs) will probably be the best choice if you care about accessing your money at any time since they are much more flexible. A money market account will allow you to deposit and withdraw funds easily. The only caveat is the number of outgoing transactions may be limited per statement cycle.

If your priority is getting the highest interest possible, a CD may be the way to go, but only if you are okay with a long-term CD. For shorter terms, MMA rates are typically higher. CDs offer higher rates than MMAs, but only when you opt to lock in your money for two years or more.

What are CD early withdrawal penalties?

If you withdraw money before your CD term is up, you'll likely have to pay a steep penalty. The severity depends on your CD's terms—a longer-term usually results in a higher penalty. The policy on early withdrawals varies from bank to bank, including penalty amounts and how the penalty is calculated.

Some banks charge an early withdrawal fee based on the amount withdrawn, while others charge based on the account's total balance. Either way, these penalties can eliminate interest you've earned on your CD and possibly even eat away at your principal. That's because many banks will dip into your principal if you haven't yet earned enough interest to cover early withdrawal fees. You'll lose out on money you would have gained while also losing some of the money you initially deposited. So you'll want to avoid putting money in a CD if you think you'll need it soon. Otherwise, you may end up walking away with less money rather than more.

Who has the best CD rates now?

The banks and credit unions listed above offer some of the most competitive CD rates on the market. For example, Discover Bank's 7 year CD guarantees a 2.2% fixed interest rate.

What are the best 12 month CD rates?

A 12 month CD can help you increase the return on your short-term savings. Rates have dropped consistently since the Federal Reserve dropped its rates, but they are still better than the return on most savings accounts.

CD rates change constantly based on the market, and this includes CDs with terms 12 months long. The list above shows some of the best CD rates available.

Is 3% a good CD rate?

That depends on the CD term length! For a year CD, 3% is an above-average interest rate. But a longer-term can provide higher CD rates -- closer to 6% for 5 years or 7 year CDs.

What is the average minimum deposit for CDs?

Depending on the bank or credit union you are working with, CD minimum deposits range from a few hundred to a few thousand dollars. However, many of the CDs listed above require no minimum deposit at all.

Are Certificates of Deposit worth it right now?

CDs are seen as safe bets for saving or investing since they are federally insured, and returns are guaranteed. And when CD rates go up, as they have in the past year, you’ll earn more money. But locking up funds in CDs for months or years isn’t the best move for everyone.

Should I put my emergency fund in a CD?

No. Because CDs limit your access to your money, you won't be able to withdraw your emergency fund when you need it most. To avoid early withdrawal penalties, it's better to keep your emergency fund in a savings account.

What happens if you take money out of a CD before it matures?

Typically, you will pay an early withdrawal penalty if you withdraw funds from your CD before it matures. However, several of the institutions listed above offer no-penalty CDs, which allows you to withdraw all your money, including interest earned, without any penalty, any time after the first six days following the date you fund your account.

What is a no-penalty CD?

A no-penalty certificate of deposit is a type of CD that has no fee for withdrawing money before the term expires. You generally can withdraw the full balance any time starting the week after the day you fund a CD. In contrast, when you withdraw early from a regular CD, you pay at least several months’ of interest earned.

Do you have to pay taxes on a CD when it matures?

You should not owe any tax on the principal because that should be the same as the amount you put into the CD. However, CD interest is taxable. That tax is not triggered by the CD's maturity but is payable on the amount of interest the CD accrues each year.

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