Best CD rates: how to compare certificates of deposit
A certificate of deposit (CD) pays a fixed rate in exchange for leaving your money with a bank or credit union for a set term, from a few months to several years. The best CD is not always the one with the highest annual percentage yield (APY).
What to compare
- APY: the yearly return including compounding. Use APY, not the interest rate, to compare.
- Term: longer terms sometimes pay more, but not always. When short-term rates are high, a 6 to 12-month CD can beat a 5-year one.
- Minimum deposit: some top rates require $1,000 or more.
- Early withdrawal penalty: often several months of interest. Investor.gov advises checking the disclosure for this before you buy.
- What happens at maturity: many CDs renew automatically at whatever rate applies then. Note the grace period to withdraw.
Is my money safe?
CDs at FDIC-insured banks are protected up to $250,000 per depositor, per insured bank, for each account ownership category. Credit union CDs (called share certificates) have equivalent NCUA cover. Check the bank’s FDIC status before opening an account with an online bank you have not heard of.
Brokered and callable CDs
Brokerage firms sell CDs from many banks, sometimes at higher rates. Investor.gov warns that deposit brokers are not licensed or approved by any agency, so check the broker and the issuing bank. Brokered CDs can lose value if sold before maturity. A callable CD can be ended early by the bank, usually when rates fall, which removes the rate you were counting on.
CD ladders
Instead of putting everything in one term, split money across several terms, for example 6, 12, 18 and 24 months. As each matures, reinvest it or use it. This keeps some cash available and averages out rate changes.
CDs or a high-yield savings account?
Savings accounts keep your money available and their rates can change at any time. CDs lock in a rate but tie up the money. Many savers use both: an emergency fund in savings, and money for a known date in CDs.