Rates Creep Up on Five-Year CDs

Before you lock in, make sure the early-withdrawal penalty isn’t onerous.

Rates on certificates of deposit are finally starting to tick up. Internet banks have recently been offering five-year CDs yielding 2%, compared with an average of 0.69% for all five-year certificates. The average was about 3% in 2008.

Even marginally higher rates are tempting for yield-starved savers. But if rates are headed higher still, shouldn’t you wait to lock in? “It’s too early to say whether we’ve turned a corner,” says Ken Tumin, of DepositAccounts.com. To take advantage of today’s higher rates without getting stuck, go for the highest-rate CD with the lowest early-withdrawal penalty.

For example, iGObanking.com is offering a five-year CD yielding 2.05% with an early-withdrawal penalty equal to 180 days’ interest. Say you invest a chunk of savings, and after a year you find that market rates are more competitive. Even after the penalty, your yield would be 1.03%. The highest rates for one-year CDs and online savings accounts are currently about 1%, so you have nothing to lose. If rates stay where they are or drop, you’re ahead of the game; if they rise, you can pull the money out and reinvest.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

You could make out even better with a reduced penalty, even if the rate is lower. Ally Bank’s five-year CD yields 1.5% with a 60-day early-withdrawal penalty. Pull out the money after a year and your yield would be 1.25%. See more CDs with high-yield rates.

Jessica L. Anderson
Associate Editor, Kiplinger's Personal Finance
Anderson has been with Kiplinger since January 2004, when she joined the staff as a reporter. Since then, she's covered the gamut of personal finance issues—from mortgages and credit to spending wisely—and she heads up Kiplinger's annual automotive rankings. She holds a BA in journalism and mass communication from the University of North Carolina at Chapel Hill. She was the 2012 president of the Washington Automotive Press Association and serves on its board of directors. In 2014, she was selected for the North American Car and Truck Of the Year jury. The awards, presented at the Detroit Auto Show, have come to be regarded as the most prestigious of their kind in the U.S. because they involve no commercial tie-ins. The jury is composed of nationally recognized journalists from across the U.S. and Canada, who are selected on the basis of audience reach, experience, expertise, product knowledge, and reputation in the automotive community.