If you're looking for places to store your cash in the new year, certificate of deposits are a wise option to consider. While the Federal Reserve didn't cut interest rates at its January meeting, there's no telling if that continues in the future. It also means now is an excellent time to lock in a higher rate while it's still available.
Our tool, in partnership with Bankrate, will let you search for a good rate on an account that's right for you.
Why open a CD account?
A CD, or certificate of deposit, is a type of investment account that holds a fixed amount of money for a fixed term — which can be anywhere from one to five years. The annual percentage yield (APY) on CD accounts is higher than rates for traditional savings accounts, helping you maximize your savings with minimal effort.
However, unlike typical savings accounts, you won't be able to withdraw cash from your account before the CD matures. If you do so, you'll have to pay an early withdrawal fee that can offset any interest you may have earned on the account (unless you open a no-penalty CD).
For this reason, CDs aren’t a great place to park cash you plan on spending in the coming months, nor do they make good emergency funds. But if you're saving for an upcoming event or large purchase, like a car or wedding, a CD can be a great savings vehicle. And because your cash is essentially locked away in a CD account, your savings will earn a fixed APY — an added benefit if rates drop.
One of the best reasons to open a CD account is that it’s one of the safest places you can save your cash. This is because most CD accounts are FDIC- or NCUA-insured. The difference depends on whether you open an account with a bank (overseen by the FDIC) or credit union (regulated by NCUA). If your bank or credit union is faced with any financial trouble or closes, your deposits will be insured up to $250,000 per account (and up to $250,000 per person in a joint account). You can even use the FDIC BankFind tool to check whether a bank is federally insured.
Opening a CD is also a great option if you’re looking for a guaranteed rate of return on your savings. While CDs offer comparatively lower returns compared to higher-risk investment options, like stocks or ETFs, they’re a good choice if you value a fixed, predictable and safe return on your money.
Here are some 1-year CDs with top rates
| Account | APY | Min Deposit |
|---|---|---|
| Prime Alliance Bank | 4.45% | $500 |
| Colorado Federal Savings Bank | 4.45% | $5,000 |
| Bask Bank | 4.40% | $1,000 |
| NexBank | 4.40% | $25,000 |
| Mountain America Credit Union | 4.25% | $500 |
| Limelight Bank | 4.25% | $1,000 |
| Northpointe Bank | 4.25% | $25,000 |
| CIBC Bank USA | 4.21% | $1,000 |
| TAB Bank | 4.21% | $1,000 |
| Bread Financial | 4.10% | $1,500 |
| National Cooperative Bank | 4.08% | $2.500 |
Pros and cons of CDs
Pros
- CDs offer guaranteed returns on deposits
- Fixed rates on CDs mean that even if rates fall, the APY on your account will remain consistent
- Most CD accounts from banks and credit unions are federally insured for up to $250,000
- Since you can only withdraw funds when your CD account matures, you won't be tempted to spend your money elsewhere
Cons
- No liquidity; Accessing funds from a CD account isn't as easy as with a savings account. And if you need to withdraw funds from a CD account before the maturity date, you'll be charged a fee, which will likely offset any interest earned
- Money cannot be added to a CD once it has been opened
- CDs have a lower earnings potential compared to stocks or mutual funds
- Fixed rates on CDs also mean that if rates increase, you'll miss out on potential earnings
- Rates may not be high enough to outpace inflation
Bottom line
Since 2022, the Federal Reserve raised interest rates eleven times in an attempt to lower inflation, hiking the federal funds rate to its highest rate in over two decades. While these rate increases drove mortgage rates to record highs and pushed many into credit card delinquency, there was one silver lining. Rates on high-yield savings accounts and CDs also increased.
But once the Fed ended its rate-hiking campaign, CD rates began to decline. At the most recent policy-setting meeting, the Fed didn't cut interest rates, but there's also no telling what happens in the future either.
Because of this, now's a great time to lock in rates before they fall even more. Compare long-term or short-term CDs to make sure you're earning the most on your cash.
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