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Today’s best interest rates on CDs (certificates of deposit) are as high as 3.25%, depending on the term of the CD. In addition, average yields are climbing. Find out the highest rates and typical returns offered on CDs of different durations.
Related: Compare the best CD prices
Highest CD rates today: 1 year, 6 month, 9 month terms
The highest interest rate currently offered on a one-year CD — one of the most popular CD terms — is 2.85%, according to data from Bankrate.com. If you discover a 12 month CD with a rate in that vicinity, you get a good deal. A week ago the best rate was the same.
The average APY, or annual percentage yield, on a one-year CD is now 1.37%, down from 1.32% a week ago. APY provides a more accurate picture of the annual interest you’ll earn with a CD because it takes compound interest into account. This is the interest you earn not only on your deposit (or principal) but also on account interest.
If you’re interested in a shorter-term CD, today’s best six-month CD rate is 2.25%. That compares to 2.25% a week ago. The current average APY for a six-month CD is 0.91%, down from 0.88% last week at this time.
On nine-month CDs, the highest interest rate is now 1.98%; last week at the same date, it was higher, at 2.57%. Nine-month CDs are offered today at an average APY of 0.90%, up from 0.78% a week ago.
Highest CD rates today: 15 month, 18 month and 2 year terms
On a 15-month CD, today’s best interest rate is 2.66%; you’ll do well if you can find a rate in that range. A week ago, the highest rate was also 2.66%.
The highest rate on an 18-month CD is currently 2.76%, the same as a week ago. The average APY is 2.02%, down from 1.96% a week ago.
If you can hold out for two years, 24-month CDs are offered today at interest rates as high as 2.96% APY. The highest rate last week at this time was similar at 2.96%. Two-year CDs now have an average APY of 1.58%, up from 1.56% last week.
A CD is a type of savings account with a fixed interest rate and lock-in term. You are not expected to touch your deposit until the end of the CD term, whether in six months, one year or five years. Your patience is rewarded with interest that is usually better than what you would earn with a regular savings account.
If you withdraw money from a CD before ‘maturity’ – when it reaches the end of its term – and you can be slapped with hefty penalties. For example, you can lose up to six months’ interest if you pre-withdraw a one-year CD.
Highest CD rates today: 3-year and 5-year terms
CDs with longer terms often have some of the most attractive interest rates and APYs, if you’re willing to keep your money locked in for years.
The average APY on a three-year CD is now 1.70%, down from 1.64% a week ago.
On a five-year CD, the highest rate today is 3.25%, down from 3.20% a week ago. APYs are averaging 1.88%, down from 1.83% in the same period last week.
The longer the duration, the more severe the early withdrawal penalty. It’s not uncommon to lose a full year of interest or more if you open a five-year-old CD too soon. Be absolutely certain that you understand the penalty before making your investment.
How CDs Work
You “buy” a CD from a financial institution by opening the account with a lump sum deposit, which becomes the principal of the CD. CDs and stock certificates (the credit union equivalent of bank CDs) often require you to make a minimum deposit. Minimum requirements vary by institution and range from one dollar to tens of thousands of dollars. Some institutions do not require a minimum.
Once you have deposited your capital, you start the countdown to your timed investment and start earning interest. The bank or credit union will provide you with regular statements showing the amount of interest you are accumulating.
Remember, you must avoid the temptation to dip into your CD before the end of the term. Early withdrawal penalties can be so severe that they take over your interest and then start eating away at your capital.
The benefits of CD laddering
Want to earn a higher return, but worry about keeping your money shackled for years? A CD ladder can help you get good returns and make your investment more liquid.
You build a ladder by investing your money in multiple CDs with different duration terms. You can buy a one-year CD, a two-year CD, a three-year CD, a four-year CD, and a five-year CD. As each of the short-term CDs matures, you replace it with a new five-year CD.
Follow this plan, and in a few years you’ll have a better-yielding five-year CD that matures every year. If you ever have a bad year, you can take some of the money from the expiring CD and use it to pay bills instead of pouring it all into a new CD.
You need to shop around to find the best CD rates. Banks and credit unions compete by offering attractive returns to earn your business, so shopping around before buying a bank CD or credit union stock certificate is a must.