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The Best CD Rates (One- And Five-Year Terms)

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I write about the fintech, cryptocurrency and investing markets.
Daphne Foreman
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Editor’s Note: While the information provided here is current, this article was not written specifically to address the economic uncertainty caused by the spread of the coronavirus (Covid-19). For example, in September 2020, in response to customers’ potential needs to access cash that is currently held in CDs, numerous banks are waiving early withdrawal penalties.

Certificate of Deposit-loving savers got a little relief in 2018 as the Federal Reserve raised its benchmark short-term interest rate four times, only to see the rate lowered three times in 2019.

So far in 2020, the Federal Reserve made a surprise announcement on March 3, lowering its interest rate by half a point, followed by an announcement on March 15 related to the economic threat of the coronavirus (Covid-19), lowering the fed funds rate to nearly zero. In these challenging times, savers may be wondering where to turn when it comes to growing their savings. Both savings account and CD APYs are affected by these decreases.

CDs won’t make you rich, but if you can grab the best CD rates on offer, you should be able to keep your money safely growing at close to the inflation rate. In other words, your savings shouldn’t be losing value.

Where to get the best rate on a CD depends, which is why it behooves you to shop around. Big banks can be pretty stingy when it comes to deposit rates of return. Online banks are aiming to steal as much business as they can and will offer higher rates to help meet that goal. It’s not just online banks that may be offering a competitive rate. Regional banks and credit unions also are competing for your banking dollars and will offer enticing rates on CDs.

Choosing the right CD is a function of APY, timing and your specific savings goals. Ultimately, you want to go with the bank that offers high rates in an FDIC-insured account. That means depositors are protected up to $250,000 per account ownership category, per bank. Credit unions are insured up to the same amount by the National Credit Union Share Insurance Fund.  Look at the APY when comparison shopping. Otherwise known as the annual percentage yield, APY gives you the percentage you’ll earn on your investment after one year on a compounding basis.

When it comes to CDs, you have options. Certificates of deposit come in different maturities ranging on average from one to five years, although some offer shorter and longer terms. Rule of thumb: The longer your money is locked up in a CD, the higher the APY tends to be. But you do pay for that higher fixed return. Should the Federal Reserve resume raising interest rates, you could miss out on a better-paying savings vehicle.  There also are penalties involved if you withdraw money from your CD early.

One-Year CDs

For those looking for a short-term way to save money for, say, a down payment on a home, a one-year CD is a good option. The current national average rate on a one-year CD stands at 0.19% as of the week of September 14, 2020, according to the FDIC. Fortunately, you can do a lot better than average.

Here is a list of some of the top one-year CD rates:

Bank CD Product APY Minimum Deposit Type
Marcus by Goldman Sachs 1 Year 0.85% $500 Online
Ally 1 Year 0.75% No Minimum Online
Synchrony Bank 1 Year 0.75% $2,000 Online
Discover Bank 1 Year 0.60% $2,500 Online
TIAA Bank 1 Year 0.60% $1,000 Online
Sallie Mae Bank 1 Year 0.60% $2,500 Online

Five-Year CDs 

Five-year CDs typically offer higher yields. However, that is not necessarily the case, given the current levels of economic uncertainty. The five-year CD requires you to lock up your money longer. Locking up your money for 60 months could mean you could miss out on opportunities to see your savings grow at a faster rate. However, in a decreasing interest rate environment, locking in a rate for a period of time can be attractive. If preservation of the buying power of your savings is the name of the game for you, the five-year CD can be a good tool.

A five-year CD is particularly attractive to individuals who care most about protecting their money and have nearly no tolerance for volatility. They get peace of mind knowing their savings will be protected and gain some yield along the way.

When it comes to shopping for a five-year CD, getting the best rate possible is critical.  The national average rate on a five-year CD stands at 0.40% as of the week of August 31, 2020.

Here are some of the best rates available on five-year CDs:

Bank CD Product APY Minimum Deposit Type
Ally 5 Years 1.00% No Minimum Online
Synchrony Bank 5 Years 1.00% $2,000 Online
TIAA Bank 5 Years 0.95% $1,000 Online
Discover Bank 5 Years 0.80% $2,500 Online
Marcus by Goldman Sachs 5 Years 0.90% $500 Online
Sallie Mae Bank 5 Years 0.60% $2,500 Online

Keep in mind that rates and terms can change daily.

Laddering CDs

Longer-term CDs tend to pay higher yields. They also require you to lock up your money for an extended period of time, unless you’re willing to incur an early withdrawal penalty. One way to get the best of both worlds is to engage in a CD ladder strategy. This occurs when savers spread their money out across different CDs with varying terms. A portion of the money goes toward short-term CDs, while another portion of the funds is allocated to longer-term CDS.

As one of the CDs matures, the money, for example, may be reinvested in a new five-year CD. Eventually, you would have a five-year CD maturing each year. This will enable you to have some access to your money and at the same time keep it in a higher-yielding savings vehicle.

CDs aren’t going to give you a double-digit return, but you can get a higher rate if you are willing to shop around. Thanks to the increased competition in the marketplace, consumers have a number of options both from traditional banks and their online brethren. Banks of all kinds want your business and will pay for it with attractive returns, making comparison shopping non-negotiable when purchasing a CD.

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