The best 1-year CD rates for July 2024: Earn up to 5.36%

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Ready to make your money work harder for you? If you want to maximize your savings and earn a fixed interest rate over the course of a year, consider a 1-year certificate of deposit (CD).

While you agree to lock up your money until the term is up (or pay the penalty), a shorter-term CD can help you make the most of today’s high interest rates.

We've looked at several 12-month CDs to find the top choices available for you. 

What are the best 1-year CD rates?

The best 1-year CD rates currently range from 5.00%-5.36%, with top accounts offered by Prime Alliance Bank, Alliant Credit Union, BrioDirect, and Bread Savings. Rates are accurate as of July 2024. 

These rates are significantly higher than the national average for 1-year CDs, which currently stands at 1.80%, according to Bankrate. 

Should you open a 1-year CD?

A one-year CD locks up your funds for 12 months in exchange for a higher interest rate. Once the term ends, you can access your cash with interest or roll it into a different CD.

If you withdraw your money before that, you’ll likely pay an early withdrawal penalty deducted from your balance.

Interest rates on CDs are at unprecedented levels, which makes locking in a CD a good choice right now. Here are some pros and cons to consider. 

Why are 1-year CDs so attractive right now? 

Over the past few years, the Federal Reserve aggressively raised interest rates to combat inflation, causing CD rates to rise. 

In June 2021, 1-year CDs averaged 0.18% APY. In February 2024, they averaged 1.83% APY, according to the Federal Reserve. 

The best 1-year CDs on the market offer APYS much higher than that, 5.00-5.25%. These elevated rates make locking your money up for just 12 months an appealing option for savers looking to maximize yield without committing to longer terms. 

But, it's important to note that many economists expect the Fed to start cutting rates as soon as late 2024 or 2025. When this happens, CD rates will likely decline as well. 

For this reason, shorter-term CDs like 1-year options offer an opportunity to take advantage of today's high-rate environment without the risk of missing out on higher rates in the future. One-year CDs offer a "sweet spot" of high yields and flexibility.

Alternatives to 1-year CDs

While 1-year CDs can be a great savings tool, they're not the only option. Here are a few alternatives to consider:

High-yield savings accounts

If you prioritize liquidity and easy access to your cash, a high-yield savings account could be a good choice. These accounts typically offer higher interest rates than traditional savings accounts, though they may not quite match 1-year CD rates. 

The main advantage of savings accounts is that you can withdraw your money at any time without penalty. This makes them a good option for emergency funds or short-term savings goals.

Money market accounts

Money market accounts are similar to savings accounts, but they often come with check-writing privileges or a debit card for easier access to your cash. Some money market accounts also offer higher interest rates than savings accounts, though again, they may not match CD rates. 

Money market accounts can be a good middle ground between the liquidity of a savings account and the higher returns of a CD. Just be aware that they may require a higher minimum balance to avoid fees or earn the highest rates.

Short-term bond funds

For savers comfortable with a bit more risk, short-term bond funds can offer higher yields than CDs or savings accounts. These funds invest in a diverse portfolio of bonds with maturities of 1-3 years. 

While short-term bond funds aren't FDIC-insured and can fluctuate in value, they tend to be much less volatile than stock funds. They can be a good choice for savers seeking higher returns who can tolerate some short-term uncertainty.

Tax implications of 1-year CDs

When considering a 1-year CD, it's important to understand how the interest you earn will be taxed. Here's what you need to know: 

• Interest is taxed as ordinary income: The interest you earn on a 1-year CD is taxed as ordinary income in the year it's paid out, much like wages or salary. This is true whether the interest is paid out monthly or reinvested into the CD. 
• No special tax treatment: Unlike stock dividends or long-term capital gains, CD interest does not receive any special tax treatment or lower rates. It's taxed at your marginal income tax rate, which could be as high as 37% for high earners. 
• 1099-INT forms: If you earn more than $10 in interest on a 1-year CD, the bank or credit union will send you a Form 1099-INT after the end of the year documenting the interest income for tax reporting purposes. You'll need to report this income on your federal tax return. 
• Spreading out interest income: If your 1-year CD term spans across multiple calendar years (for example, opening a CD in July 2024 that matures in July 2025), the total interest earned will be split across two tax years. This could potentially help you stay in a lower tax bracket and minimize your tax liability. 

One strategy to reduce the tax impact of CD interest is to use the funds to invest in tax-advantaged accounts like a 401(k), IRA, or HSA. By reinvesting your CD proceeds into these accounts, you can potentially defer or avoid taxes on the interest earned.

Frequently asked questions about 1-year CDs

Are 1-year CDs worth it?

One-year CDs are worth considering if you want to earn a competitive, fixed rate of return and can afford to lock up your money for 12 months. 

As of March 2024, 1-year CDs provide some of the highest yields available to savers, with rates around 5.00-5.25% APY. 

One-year CDs do have some downsides. You typically can't access the money during the term without incurring an early withdrawal penalty. And if interest rates rise in the future, you could miss out on higher yields. But for money you don't need immediately, 1-year CDs offer a low-risk way to boost your return.

Who should open a 1-year CD?

A 1-year CD can make sense for savers who: 

• Have additional cash they can afford to set aside for a full year 
• Want to earn more interest than most savings and money market accounts offer 
• Prefer a guaranteed, fixed return without the volatility of stocks or bonds 
• Expect interest rates to fall in the next couple of years 

A CD may not be a good move if you may need the money within the next 12 months or you're looking for the highest growth potential possible. 

You may want to look at high-yield savings accounts for more flexibility, or stocks for higher potential returns. 

What happens when a 1-year CD matures?

When your 1-year CD matures at the end of the term, you typically have a short grace period to decide what to do with the money. 

You have a few options at maturity: 

• Withdraw the funds and close the CD. The principal and interest earned are transferred to your bank account. 
• Renew the CD for another 1-year term. Most banks will automatically do this for you. 
• Transfer the money to a new CD with a different term. For example, you could choose a shorter 6-month or longer 18-month CD. 

If you do nothing, the bank will usually automatically renew your CD for the same 1-year term at the current interest rate. 

To make sure you don't get locked in unintentionally, set a reminder for your CD's maturity date. 

How we rated the best CDs 

To determine the best CDs, we carefully evaluated a wide range of factors, including interest rates, fees, and minimum deposit requirements.

Our team analyzed numerous CD offers and selected the top contenders based on these key criteria. The options on this list represent the best value benefits available.

Here are some of the key factors we considered:

• Interest rate: The interest rate is the primary reason someone would choose a savings, CD, or money market account over another, so this is our most heavily weighted factor. 
• Fees: Fees, particularly early withdrawal penalties can eat into the overall cost of a CD.
• Minimum deposit & balance requirements: High minimum deposits can be a barrier, and high balance requirements to avoid fees or earn the best rate limit the CD's usefulness.

The bottom line

CDs are a safe place to grow your money and earn above-average returns. Still, there are some drawbacks to consider before opening an account.

Don’t just settle for a 1-year CD offering the highest rate. Look beyond the earning potential to learn more about each account’s features and penalties. Depending on your situation, a more liquid option, like a high-yield checking or money market account, may be better suited for you.

Editorial disclaimer: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.