The best 5-year CD rates for July 2024: Earn up to 4.80%

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If you're looking for a safe, reliable way to grow your savings over the next few years, a 5-year certificate of deposit (CD) could be the perfect solution. These accounts offer guaranteed returns for a 60-month term, with some of the highest interest rates available.

What are the best 5-year CD rates currently available? Our research shows that the top rates range from 3.75% to 4.80% annual percentage yield (APY) as of June 2024. 

These rates are offered by a mix of online banks, traditional banks, and credit unions.

What are the best 5-year CD rates? 

These rates are significantly higher than the national average for 5-year CDs, which currently stands at 1.43% APY.

What are CDs, and how do they work?

A certificate of deposit, or CD, is a type of savings account that offers a fixed interest rate for a specific term. When you open a CD, you agree to leave your money in the account until the term ends, which could be anywhere from a few months to several years.

In exchange, the bank or credit union will typically offer a higher interest rate than you could earn with a traditional savings or checking account. The longer the CD term, the higher the interest rate tends to be.

Here are a few key features of CDs:

• Fixed interest rate: When you open a CD, you lock in a fixed interest rate for the entire term. This means you'll know exactly how much your money will earn, regardless of any changes in market rates.
• Fixed term: CDs have a set maturity date, which is when the term ends and you can withdraw your money without penalty. Terms can range from a few months to 10 years or more.
• Penalty for early withdrawal: If you need to access your money before the CD term ends, you'll typically face an early withdrawal penalty. This could be a certain number of months' worth of interest or a percentage of the amount withdrawn.
• FDIC or NCUA insurance: Most CDs are insured by either the FDIC (for banks) or the National Credit Union Administration (NCUA) for up to $250,000 per depositor. This means your money is protected even if the bank or credit union fails.

CDs can be a good choice if you have money that you don't need for a specific period of time and want to earn a guaranteed return without taking on much risk. They can also be useful for saving toward specific goals, like a down payment on a house or a child's college education.

Is now a good time to open a 5-year CD?

CD interest rates have risen to unusual highs in the past few years thanks to the Federal Reserve raising rates to combat inflation. 

The average APY for a 5-year CD is 1.43%, according to the Federal Reserve. But the best 5-year CDs are offering rates much higher than that, over 4% APY. 

To put this in perspective, a $10,000 deposit into a 5-year CD at 4.5% would earn approximately $2,500 in interest over the term. That's a significant return for a low-risk investment. Just a few years ago, 5-year CDs were offering less than half of that. 

Interestingly, short-term CDs are currently offering higher rates than long-term CDs. For example, the best 1-year CDs are around 5.50%, higher than 5-year rates. This is because most experts predict rates may start trending downward in 2024 as the Fed taps the brakes on hikes.

This "inverted yield curve" is unusual but presents opportunities for savers. While a 5-year CD offers a great return, a 1-year CD might be even better if you expect rates to keep falling.

Who 5-year CDs are best for

A 5-year CD is a good option if you have a savings goal that's at least 5 years away and you want a guaranteed return without volatility. Here are some examples of financial goals that might align well with a 5-year CD:

• Saving for a down payment on a house 
• Building an education fund  
• Saving for a wedding or dream vacation 
• Creating a CD ladder for retirement 

The key is that you need to be very confident you won't need the money for the full 5-year term. Five-year CDs typically have the highest early withdrawal penalties, often around one years' worth of interest. 

So it's critical to have other emergency savings set aside first. If you're saving for retirement and are in a high tax bracket, you might also consider a 5-year IRA CD. 

These have the same terms as regular 5-year CDs but are held within an IRA. This allows you to defer or avoid taxes on the interest earned, depending on whether you choose a Traditional or Roth IRA.

How to choose the right 5-Year CD

If you've decided that a 5-year CD is right for you, here are some factors to consider when choosing an account:

Interest rate

Of course, one of the most important considerations is the interest rate. Look for the highest APY you can find, but be sure to also consider the minimum deposit required and any fees that could eat into your earnings.

Compounding method

CDs can compound interest daily, monthly, quarterly, or annually. More frequent compounding will result in slightly higher returns, so all else being equal, a CD with daily compounding is preferable to one with annual compounding.

Early withdrawal penalties

Even if you don't plan to touch your money before the CD matures, it's important to understand the consequences if you do need to make an early withdrawal. Look for a CD with reasonable early withdrawal penalties, just in case.

Renewal policy

What happens when your CD matures? Some will automatically renew for another term at the then-current interest rate, while others will transfer the balance to a low-interest savings account. Consider whether you want the convenience of automatic renewal or the flexibility to reinvest elsewhere.

Institution reputation

Finally, be sure to choose a reputable bank or credit union for your 5-year CD. Look for an institution with a long history of financial stability, strong customer reviews, and FDIC or NCUA insurance coverage.

Alternatives to 5-Year CDs

While 5-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 want the flexibility to access your money at any time without penalty, 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 match the rates of a 5-year CD.

Money market accounts

Money market accounts are similar to savings accounts, but they often come with checks or a debit card for easy access to your money. They may also offer higher interest rates than savings accounts, though again, they may not match CD rates.

Shorter-term CDs

If you're not comfortable locking your money up for a full five years, you could consider a shorter-term CD, like a 1-year or 3-year account. These will typically offer lower interest rates than a 5-year CD, but they provide more flexibility if you think you might need the money sooner.

CD ladder

If you want the high interest rates of a 5-year CD but also want some liquidity, you could build a CD ladder. This involves dividing your money across multiple CDs with staggered maturity dates, such as 1, 2, 3, 4, and 5 years. As each CD matures, you can either reinvest the money into a new 5-year CD or use it for other purposes.

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

A 5-year CD can be an excellent way to earn a guaranteed return on your savings without taking on much risk. With interest rates at historic highs, now is a particularly good time to lock in a competitive rate and grow your money over the next few years.

Of course, a 5-year CD is a long-term commitment, so be sure you won't need the money before the term ends. And as with any financial decision, it's important to shop around and compare your options before opening an account.

But if you have money that you can set aside for the next five years and want to earn a safe, predictable return, a 5-year CD is definitely worth considering. By choosing the right account and maximizing your interest earnings, you can build your savings and reach your financial goals faster.

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.