CD rates today, August 12, 2024 (2024)

The rates offered on CDs are influenced by several factors, such as the term length (longer terms usually offer higher rates), deposit amounts (some CDs have tiered rates), and, importantly, Federal Reserve interest rates. Understanding these factors can help you make well-informed investment decisions.

CD rates today: earn up to 5.25%

CD rates news 2024

Interest rates on CDs have surged since 2022 in response to Fed rate hikes. The national average rate for 5-year CDs has risen sharply to 1.86%, a substantial increase from less than 0.50% in June 2022. Many banks are currently offering even higher rates, with top 5-year CDs boasting APYs over 4% and some 1-year CDs providing APYs well above 5%.

The initial rise in CD rates coincided with the Fed’s efforts to combat inflation. As inflation has decreased from over 9% in mid-2022 to around 3% currently, the Fed has maintained interest rates at 5.25% to 5.5% since July 2023. However, there remains a possibility of a rate cut later this year.

Is it still a good time to open a CD?

With recent increases in interest rates, investing in a CD now could potentially yield higher returns than if you wait much longer. CD APYs are contingent on fluctuations in the federal funds rate, and rates could decrease if the Fed decides to implement a rate reduction later this year, as it has indicated.

Currently, CD rates are at their highest point in recent years, reflecting favorable market conditions. Therefore, this could be an advantageous time to consider investing in CDs, whether for short-term financial goals or long-term objectives. Depositing a larger lump sum can maximize your earnings through significant interest over the CD's term.

Historical CD rates

In the early 1980s, CD rates surged into double digits, in contrast with today's lower rates. By 2019, however, the APY for a 5-year CD had surpassed 3%.Throughout the early 2020s, top rates typically remained below 1% APY. Recently, there has been a period of increasing rates, with the best offerings now surpassing 5% APY for 1-year CDs.

How to get a good CD rate

Determining what constitutes a good CD rate involves finding a balance between securing the highest available rate and your willingness to keep funds locked away for a specific duration.

For instance, choosing a 5% APY CD over five years might not be ideal if you expect to need access to your funds sooner or if interest rates increase, potentially lowering your overall returns. Generally, rates that exceed the national average are considered advantageous.

It's crucial to compare rates across different banks to find the best option tailored to your specific financial goals. Key factors to consider when comparing CDs include:

• Term length: Ensure it aligns with your savings objectives and time frame.
• APY: Higher rates are typically offered for longer terms.
• Minimum deposit: Verify that you can meet the required initial balance.
• Penalties: Understand the costs associated with early withdrawal before maturity.
• Deposit insurance: Confirm that the bank is Federal Deposit Insurance Corp. (FDIC)- or National Credit Union Administration (NCUA)-insured for deposit protection.

Additionally, online banks often provide higher interest rates, but be mindful of any minimum balance requirements and associated fees. Opting for a bank rather than a broker can sometimes help avoid unnecessary charges.

Look into offerings from online banks

Online banks and fintech companies often offer more competitive rates compared to national banks. Large financial institutions primarily derive revenue from interest on loans, fees, and investments in securities.

Meanwhile, smaller banks and online fintech companies attract customers by providing competitive APYs on deposit accounts. Furthermore, online banks typically operate with lower overhead costs, allowing them to pass on better rates to their clients.

Set up a CD ladder

CD ladders appeal to savers who prefer flexibility without committing funds for extended periods. By diversifying savings across CDs with different maturity dates, you can balance short-term accessibility with higher long-term interest rates.

For instance, begin by investing $3,000 in three staggered CDs (1-year, 2-year, and 3-year terms). As each CD matures, reinvest the funds into a new 3-year CD. This approach allows annual access to your funds while benefiting from accrued higher interest from the longer term lengths.

Compare CD rates by term length

At present, CD rates are elevated across both short-term and long-term options. While annual percentage yields are important, they are not the sole factor when selecting a financial institution for your CD. However, being informed about the highest available rates can guide you in making a well-informed decision.

Compare rates to top national banks

Many of the institutions mentioned may not be familiar because certificates of deposit typically do not generate significant income independently for major financial institutions.

Established banks like Chase, PNC, and U.S. Bank prioritize attracting customers through more lucrative products, such as loans and credit cards, rather than CDs. Consequently, CD interest rates offered by these banks are often lower compared to those available at smaller regional banks or online institutions. Additionally, securing a competitive rate at these larger banks may necessitate opening additional deposit accounts or meeting higher minimum deposit requirements.

How do CDs work?

A certificate of deposit is a specialized savings account where you can earn interest by depositing money for a specific period. Unlike traditional savings accounts, which have interest rates subject to market fluctuations, a CD offers a fixed interest rate for the entire duration of its term. This stability ensures that savers benefit from predictable returns, especially during periods of higher interest rates set by the Federal Reserve.

At maturity, you have the option to withdraw both your initial deposit and the accrued interest. One key difference between a CD and a standard savings account is that funds deposited in a CD cannot be accessed before the term ends without incurring an early withdrawal penalty.

Types of certificates of deposit

There are various types of CDs designed to meet different financial needs:

1. Brokered CDs are purchased and sold through brokerage accounts rather than directly from banks or credit unions. They often offer higher APYs because they are issued by banks and then sold to brokerages.
2. Callable CDs include a feature that allows the issuing institution to terminate the CD before its maturity date. Investors receive their principal and any accrued interest up to the call date if this option is exercised.
3. Bump-up CDs allow you to request a higher APY if interest rates increase after opening the account. Typically, you can adjust the rate once or twice during the CD's term.
4. No-penalty CDs do not charge penalties for early withdrawals before maturity. This type is less common and may offer lower APYs compared to traditional CDs.
5. Jumbo CDs require a substantial minimum deposit, often starting at $100,000 or more. They generally offer higher APYs than standard CDs.
6. Variable-rate CDs have an APY that changes in response to prevailing interest rates. These CDs carry more risk than traditional CDs because a decrease in interest rates before maturity can result in a lower yield.

The takeaway

Presently, CD rates are elevated for both short-term and long-term options. While annual percentage yields are crucial, they are not the sole factor to weigh when deciding where to open your CD. Nevertheless, staying informed about the highest available rates can assist you in making a well-informed decision.

Frequently asked questions