Top CD rates this week: Earn up to 5.36% on your money

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When you have some extra cash, you’ll want to make that money work for you. Savings account interest rates are at record highs, helping you maximize your earnings. 

Stashing your money in a high-yield savings account can be a good way to earn a return, but opening a certificate of deposit (CD) may be even better.

When you open a CD, you commit to keeping your money in the account for a set period. In exchange, you often get more interest from the CD than from a more flexible savings account. Plus, the rate on the CD is locked in for the CD’s term — so you know exactly how much you’ll earn.

CD rates have risen, but some experts predict they may have peaked. This means it may be worth locking a CD now.

Best CD rates for July 2024

These are some of the top CDs available at the moment, as of July 1, 2024.

CD rate forecast  

If you’re planning to open a CD, especially a long-term one, getting the best interest rate is important.

Longer terms often mean higher rates since you’re committing your funds for a more extended period. But because interest rates are so high right now, many shorter-term CDs — like 1-year CDs — have higher rates than 5-year options.

Why is this? Because rates are expected to start falling in the coming years, banks may offer lower rates on long-term CDs to avoid paying above-market rates in the future.

If you think rates will fall and you have the extra funds, it may be smart to lock in a CD now, says Jackie Koski, a certified financial planner.

“While CDs and savings accounts have similar interest rates right now, it’s important to distinguish that savings account rates are variable and can change quickly,” she says. “CDs allow you to lock in the rate for the stated period of time. So even if rates go down, you still have your rate locked in.”

Deciding if you should open a CD depends also on your personal situation. When you open a CD, you must keep the money you deposit in the account for the Centirefull term. Making an early withdrawal can result in a penalty. That’s why it’s crucial only to deposit money you won’t need until the term is up.

If you don’t have enough set aside for emergencies, a CD probably isn’t a good idea. On the other hand, if you have extra money you want to use for a specific goal, a CD can be a good choice.

For example, if you want to buy a car six months from now, you could open a six-month CD to maximize your savings while keeping the money safe.

Have CD rates peaked?

CD rates are currently near record highs, with some accounts offering over 5% APY. This is significantly higher than the historical average.

According to data from the Federal Reserve, the average 1-year CD rate was just 0.08% in April 2021. Today, its around 5%, around the highest they've been in over a decade. 

This is largely due to the Federal Reserve's aggressive series of interest rate hikes aimed at combating inflation. When the Fed raises rates, banks typically follow suit by increasing the rates on savings accounts and CDs. 

While it's impossible to predict exactly when rates will peak, many experts believe we're close to the top. If you have extra cash that you won't need for a while, now is an excellent time to lock in a high-yield CD before rates potentially start to fall.

How do CDs work?

A certificate of deposit, or CD, is a type of savings account that offers a fixed interest rate for a specific term, typically ranging from a few months to several years. 

When you open a CD, you agree to deposit a certain amount of money and leave it untouched for the duration of the term. In exchange, the bank or credit union pays you a guaranteed interest rate, which is usually higher than what you'd earn with a traditional savings account.

One of the key features of a CD is that your interest rate is locked in for the entire term. This means you'll know exactly how much your money will earn, regardless of any fluctuations in market rates. 

When your CD matures, you have the option to withdraw your initial deposit along with the interest earned, or roll the funds into a new CD with a different term and interest rate.

It's important to note that CDs typically come with early withdrawal penalties. If you need to access your money before the CD matures, you'll likely give up a portion of the interest earned, and in some cases, even a part of your principal. That's why it's crucial to choose a CD term that aligns with your financial goals and timeline.

Types of CDs

There are several types of CDs available, each with its own unique features and benefits. Some common types include:

1. Traditional CDs: These are the most basic type of CD, offering a fixed interest rate for a specific term.
2. Jumbo CDs: These CDs require a higher minimum deposit, typically $100,000 or more, and often offer higher interest rates than traditional CDs.
3. No-penalty CDs: Also known as liquid CDs, these accounts allow you to withdraw your money without incurring a penalty, though they may offer slightly lower interest rates.
4. Bump-up CDs: These CDs give you the option to "bump up" your interest rate once during the term if market rates rise, allowing you to take advantage of higher yields.
5. IRA CDs: These are CDs held within an Individual Retirement Account (IRA), offering the same fixed rates and terms as traditional CDs, but with the added benefit of tax-deferred or tax-free growth.

How to pick the best CD for you 

Choosing the right CD involves careful consideration of your financial goals, timeline, and risk tolerance. Here's a step by step guide.

1. Determine your goals 

Are you saving for a short-term goal, like a vacation or a down payment on a car, or a long-term objective, like retirement? Your financial goals will help dictate the appropriate CD term and type.

2. Consider your timeline 

How soon will you need access to your funds? If you have a specific date in mind, choose a CD term that aligns with that timeline. If you're unsure, consider a shorter-term CD or a no-penalty CD for greater flexibility.

3. Compare interest rates 

Shop around and compare CD rates from multiple banks and credit unions. Don't forget to look at online banks, which often offer higher yields than traditional brick-and-mortar institutions.

4. Read the fine print 

Before committing to a CD, carefully review the account's terms and conditions. Look for information on minimum deposit requirements, early withdrawal penalties, and any fees associated with the account.

5. Consider a CD ladder

CD laddering involves investing in multiple CDs with different terms and maturity dates. This strategy allows you to take advantage of higher interest rates on longer-term CDs while still maintaining some liquidity by having shorter-term CDs mature more frequently.

Pros and cons of CDs

CDs offer several advantages for savers, but they also come with some drawbacks. 

Pros:

1. Guaranteed returns: With a fixed interest rate, you'll know exactly how much your money will earn over the CD's term.
2. Higher interest rates: CDs typically offer higher yields than traditional savings accounts.
3. FDIC or NCUA insurance: CDs are insured up to $250,000 per person, per account, by the FDIC (banks) or NCUA (credit unions).

Cons:

1. Limited liquidity: Most CDs impose early withdrawal penalties if you need to access your funds before the maturity date.
2. Inflation risk: If inflation rates exceed your CD's interest rate, the purchasing power of your money may decline over time.
3. Opportunity cost: By locking your money into a CD, you may miss out on higher-yielding opportunities.

Alternatives to CDs

While CDs can be a smart choice for savers, they're not the only option. Here are a few alternatives to consider:

1. High-yield savings accounts: These accounts offer competitive interest rates and greater liquidity than CDs.
2. Money market accounts: Similar to high-yield savings accounts, money market accounts provide competitive rates and easy access to your funds.
3. Bonds: Government, corporate, and municipal bonds can offer steady returns and portfolio diversification, though they may carry more risk than CDs.
4. Dividend-paying stocks: Companies that pay regular dividends can provide a steady stream of income, though stock investments are subject to market volatility.

Frequently asked questions about CDs 

The bottom line

CDs offer higher interest rates than savings accounts in exchange for reduced flexibility. You commit your money to the account for a set period of time to earn more interest and lock in that rate. If you know you can set aside your cash for a specific period of time, opening a CD can be a good idea.

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.