CD rates today, September 3, 2024 (2024)

CD rates are influenced by different factors, such as the length of the term (longer terms usually offer higher rates), the amount deposited (some CDs have tiered rates), and most significantly, the Federal Reserve interest rates. Understanding these dynamics can help you make an informed investment decision.

CD rates today: earn up to 5.25%

CD rates news 2024

Interest rates on CDst have surged since 2022, following the Fed's rate hikes. The national average rate for 5-year CDs has risen to 1.86%, up significantly from less than 0.50% in June 2022. Many banks are offering even higher rates, with top 5-year CDs boasting APYs over 4%, and some 1-year CDs offering APYs well above 5%.

CD rates increased in recent years as the Fed implemented measures to combat inflation. With inflation declining from over 9% in mid-2022 to 3% currently, the Fed has maintained interest rates at 5.25% to 5.5% since July 2023. However, a rate cut later this year remains a possibility.

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. However, CD APYs are influenced by the federal funds rate, and rates could decrease if the Fed decides to lower them as 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 a CD for short-term or long-term goals. Depositing a larger lump sum can help you earn substantial interest over the CD's term.

Historical CD rates

In the early 1980s, CD rates surged into double digits, sharply contrasting with today's lower rates. By 2019, however, the APY for a 5-year CD had slightly exceeded 3%.

Throughout the early 2020s, top rates typically remained below 1% APY. Recently, however, rates have increased, 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 the highest rate available and your ability to leave funds locked away for the specified term.

For instance, a 5% APY CD over five years may not be suitable if you anticipate needing liquidity sooner or if interest rates increase, potentially resulting in lower overall returns. Generally, rates that exceed the national average are considered worthwhile.

It's important to compare rates across different banks to find the best option for your specific needs. Key factors to consider when comparing CDs include:

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

Additionally, note that online banks often offer higher interest rates but be mindful of any minimum balance requirements and associated fees. Choosing a bank over a broker can sometimes help avoid unnecessary fees.

Look into offerings from online banks

Online banks and financial technology companies (fintech) generally offer more competitive rates than national banks. Large financial institutions primarily earn revenue from interest on loans, fees, and investments in securities.

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

Set up a CD ladder

CD ladders are perfect for savers who are hesitant to commit funds for extended periods of time. By diversifying savings across CDs with different maturity dates, you can benefit from both short-term accessibility and higher long-term interest rates.

For instance, say you invest $3,000 in three staggered CDs (1-year, 2-year, and 3-year). As each CD matures, you can reinvest the funds into a new 3-year CD. This approach allows annual access to your money along with the accrued interest.

Compare CD rates by term length

At present, CD rates are elevated across both short-term and long-term options. While APYs are not the sole factor to weigh when selecting a financial institution for your CD, staying informed about the highest available rates can guide you toward making a well-informed decision.

Compare rates to top national banks

If you're unfamiliar with many of the institutions mentioned, it's because certificates of deposit typically do not generate substantial income 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 than those at smaller regional banks or online institutions. Moreover, to obtain a competitive rate at these larger banks, you may need to open additional deposit accounts or meet higher minimum deposit requirements.

How do CDs work?

A certificate of deposit is a specialized savings account where you earn interest by depositing money for a set period of time. Unlike traditional savings accounts, which have interest rates that fluctuate with market conditions, a CD offers a fixed interest rate throughout its term. This stability allows savers to benefit from predictable returns, particularly during periods of higher interest rates set by the Fed.

At maturity, you can access both your initial deposit and the accumulated interest. One notable difference between a CD and a standard savings account is that funds in a CD cannot be withdrawn before the term ends without incurring an early withdrawal penalty.

Types of CDs

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

• Brokered CDs are bought and sold through brokerage accounts rather than directly from banks or credit unions. These CDs often offer higher APYs since they are issued by banks and sold to brokerages.
• 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.
• Bump-up CDs allow you to request a higher APY if interest rates increase after opening the account. You can typically adjust the rate once or twice during the CD's term.
• 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.
• Jumbo CDs require a substantial minimum deposit, often starting at $100,000 or more. They generally offer higher APYs than standard CDs.
• 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 and long terms. While APYs are crucial, they aren't the sole consideration when choosing where to open your CD. Nonetheless, knowing the highest available rates can assist you in making a knowledgeable choice.

Frequently asked questions