With it being the start of a new year, you might be thinking of places to find to park your money. One of the safest bets continue to be certificate of deposits. And while rates have dropped some, you can still find ones earning around 4%.
CD rates have risen substantially since 2022, following the Federal Reserve’s effort to lower inflation through 11 interest rate hikes. As interest rates rose, many banks began offering even more competitive yields on savings accounts.
Now that the Fed's rate hiking campaign is over, the boon to CD rates has come to an end. If you act fast, however, you can still lock in an impressive rate.
Currently, many of the top-yielding CD accounts still have rates around 4%. So, if you’re saving for an upcoming purchase, or just looking for a fixed and safe return on your cash, opening a 3-year CD account could be a smart option. Just make sure you won’t need access to your money before the CD's maturity date.
Best 3-year CD accounts
Here's a look at the best 3-year CD rates:
| Account | APY | Min Deposit |
|---|---|---|
| All in Credit Union | 4.07% | $1,000 |
| Synchrony | 4.00% | $0 |
| INOVA Federal Credit Union | 4.00% | $200 |
| Securityplus Federal Credit Union | 4.00% | $1,000 |
| The Federal Savings Bank | 3.95% | $5,000 |
| MYSB Direct | 3.90% | $500 |
| Seattle Bank | 3.80% | $1,000 |
| EFCU Financial | 3.75% | $500 |
| Lending Club | 3.50% | $2,500 |
| Connexus Credit Union | 2.71% | $5,000 |
What is a CD account?
With a CD account, your cash is locked away for a fixed period of time of typically 1-5 years, unless you’re prepared to pay a fee to take it out early.
Because of those early-withdrawal fees, CDs aren’t a good place to park cash you plan on spending in the coming months, nor do they make good emergency funds. They are good options, however, if you’re trying to save for a future purchase or event and want to grow your cash without accessing it.
You’re guaranteed a fixed return on your cash, so the rate won’t go up or down based on market conditions, which is both a good thing as you get certainty, but also a possible problem, in case rates elsewhere shoot up and you don’t benefit.
Like other savings accounts, they are a good option for those who value risk-free returns as you aren’t riding the waves of the stock market. In addition, most CD accounts are FDIC or NCUA insured, depending on whether they’re opened through a bank or credit union, so your cash is safe even if your bank or credit union closes. FDIC insurance protects up to $250,000 per account ($250,000 per person in a joint account), while NCUA insurance protects up to $250,000 per credit union member.
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
- No liquidity; Accessing funds from a CD account isn't as easy as with a savings account. And if you need to withdraw funds from a CD account before the maturity date, you'll be charged a fee, which will likely offset any interest earned
- Money cannot be added to a CD once it has been opened, in most cases
- CDs have a lower earnings potential compared to stocks or mutual funds
- Fixed rates on CDs also mean that if rates increase, you'll miss out on potential earnings
- Rates may not be high enough to outpace inflation, and high-yield savings accounts could offer better rates of return
1-year vs 3-year vs 5-year CD accounts
Given your money is essentially locked away (unless you pay fees to get it out early), you need to carefully consider the amount of time you want to tie your cash up between the various types of CD options.
For example, if you plan on purchasing a vehicle in around 3 years, opting for a 3-year CD can help you bolster your savings for when the time comes. It’s a “set it and forget it” type of investment. Your cash will grow thanks to compound interest with little effort on your part.
Bottom line
Now is a good time to lock in CD rates while they remain high. Before doing so, however, make sure to choose an account with a maturity date suited to your financial needs.
If you're considering opening a 3-year CD to save for a future purchase or event, you can use our savings calculator to determine just how much your money will grow over time, depending on the APY of the account and the size of the deposit made.
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