The best 5-year CD rates are still well above 4%, but the period of high returns on these safe investments could be ending soon, in tune with the Federal Reserve's decision to halt its rate-hiking campaign.
Here's a look at why rates are likely to dwindle in the months ahead and what good CD deals you can still scoop up now.
Since March 2022, the Federal Reserve has raised the federal funds rate 11 times in an attempt to ease inflation. These interest rate hikes caused mortgage rates, credit card APRs and interest rates on other types of loans to go up, putting a strain on borrowers' budgets. But as interest rates rose, so did savings rates. CD rates went up with the Fed hikes, and some of the highest-earning 1-year CD accounts offer APYs of over 5%, while some of the best 5-year CD rates are above 4%.
However, as the Fed ended its rate hiking campaign, the growth of CD and high-yield savings account rates has also come to an end. Rates began dropping ever since the Federal Reserve started holding interest rates steady. At its latest meeting in June, the Federal Reserve decided to hold the federal funds rate steady for the seventh consecutive time. This means that the federal funds rate, a key bank lending rate, will remain at a target range of 5.25% to 5.5%, the highest it’s been in 23 years.
And savings rates are expected to decrease even further when the Fed begins cutting interest rates later this year. Previously, three interest rate cuts were predicted in 2024, but now estimates are for just one quarter-point cut for the year.
You can use our tool — powered by Bankrate — to compare CD rates below.
Why open a CD?
A CD, or certificate of deposit, is a type of investment account that holds a fixed amount of money for a fixed term. The APY associated with a CD account is usually higher than that of a traditional savings account, so you’ll be able to earn more thanks to compound interest. Our savings calculator can help you determine just how much you’ll earn in interest once your CD term ends.
Unlike savings accounts, though, you won’t be able to access the cash in your CD before the end of the term, or you’ll be met with a fee. Therefore, it’s a good place to put aside cash you don’t intend on using until a future date — maybe you don’t plan on purchasing a new vehicle for another two years and want to accrue as much savings from interest as possible until then.
CDs are also good options for anyone looking for a fixed, predictable and safe return on their savings. This is because most CD accounts are FDIC or NCUA insured, meaning up to $250,000 per account is safe if the bank goes under. The difference depends on whether you open an account with a bank (overseen by the FDIC) or a credit union (regulated by NCUA).
Short-term vs. long-term CDs
It can be easy to choose between a 1-year CD and a 5-year CD if your money is going toward a particular savings goal. For example, you may be getting married in one year, so it would make sense to open a CD with a similar term.
On the other hand, if you’re looking to open a CD with no particular savings goal in mind, you’ll need to consider how long you'll be able to reasonably go without accessing your cash. If you open a 5-year CD and then realize you need to withdraw that cash at the 3-year mark, you'll have to pay a fee, offsetting any interest earned.
You'll also want to consider interest rates before opening a long-term CD. Since rates on CDs are fixed, you can take advantage of high rates for an extended period of time by opening a 5-year CD. If rates go down in that time period, your earnings won't be affected. But if rates rise in that five-year time span, you'll be missing out on earnings potential.
Top 5-Year CD Accounts
BMO Alto
APY: 4.75%
Minimum Balance: $0
Grow Financial Federal Credit Union
APY: 4.75
Minimum Balance: $500
Pima Federal Credit Union
APY: 4.50%
Minimum Balance: $250
Dow Credit Union
APY: 4.35%
Minimum Balance: $500
First Internet Bank
APY: 4.50%
Minimum Balance: $1,000
First National Bank of America
APY: 4.50%
Minimum Balance: $1,000
Seattle Bank
APY: 4.50%
Minimum Balance: $1,000
The Federal Savings Bank
APY: 4.45%
Minimum Balance: $5,000
Crescent Bank
APY: 4.40%
Minimum Balance: $1,000
Colorado Federal Savings Bank
APY: 4.35%
Minimum Balance: $5,000
Department of Commerce Federal Credit Union
APY: 4.34%
Minimum Balance: $500
Lafayette Federal Credit Union
APY: 4.32%
Minimum Balance: $500
MYSB Direct
APY: 4.31%
Minimum Balance: $500
CoVantage Credit Union
APY: 4.30%
Minimum Balance: $1,000
Pros and cons of CDs
Pros
- CDs offer guaranteed returns on deposits
- Fixed rates on CDs mean that even if rates fall, the APY on your account will remain consistent
- Most CD accounts from banks and credit unions are federally insured for up to $250,000
- Since you can only withdraw funds when your CD account matures, you won't be tempted to spend your money elsewhere
Cons
- CDs offer guaranteed returns on deposits
- Fixed rates on CDs mean that even if rates fall, the APY on your account will remain consistent
- Most CD accounts from banks and credit unions are federally insured for up to $250,000
- Since you can only withdraw funds when your CD account matures, you won't be tempted to spend your money elsewhere
Bottom line
Since APYs on CD accounts are still high, — rates on five-year CDs are well above 4% — you should start thinking about locking in rates. CD rates started to slowly fall when the Fed began holding interest rates steady, and now that an interest rate cut is predicted for the near future, they'll fall even further. If you're confident you won't need to withdraw any funds from your CD before its maturity date, now's a good time to open an account.
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