Following the Federal Reserve's first rate cut in four years, savings rates on both CDs and high-yield savings accounts have dropped. However, rates on some of the best 5-year CD accounts still remain over 4%. So if you're looking to open a CD account, now's the time to do it, as additional rate cuts are expected throughout the next year.
Here's a look at why rates will continue to dwindle in the months ahead and what good CD deals you can still scoop up.
Starting in March 2022, the Federal Reserve raised the federal funds rate 11 times in an attempt to ease inflation. These interest rate hikes caused mortgage rates, credit card APRs and interest rates on other types of loans to increase, putting a strain on borrowers' budgets. But as interest rates rose, so did savings rates. CD rates went up with the Fed hikes.
However, when the Fed ended its rate hiking campaign, the growth of CD and high-yield savings account rates also came to an end. At its latest meeting in September, the Federal Reserve cut rates by 50 basis points, which caused CD rates to take a hit. Savings rates will continue to fall throughout the next year as the Fed cuts interest rates further.
You can use our tool — powered by Bankrate — to compare CD rates below.
Why open a CD?
A CD, or certificate of deposit, is a type of investment account that holds a fixed amount of money for a fixed term. The APY associated with a CD account is usually higher than that of a traditional savings account, so you’ll be able to earn more thanks to compound interest. Our savings calculator can help you determine just how much you’ll earn in interest once your CD term ends.
Unlike savings accounts, though, you won’t be able to access the cash in your CD before the end of the term, or you’ll be met with a fee. Therefore, it’s a good place to put aside cash you don’t intend on using until a future date — maybe you don’t plan on purchasing a new vehicle for another two years and want to accrue as much savings from interest as possible until then.
CDs are also good options for anyone looking for a fixed, predictable and safe return on their savings. This is because most CD accounts are FDIC or NCUA insured, meaning up to $250,000 per account is safe if the bank goes under. The difference depends on whether you open an account with a bank (overseen by the FDIC) or a credit union (regulated by NCUA).
Short-term vs. long-term CDs
It can be easy to choose between a 1-year CD and a 5-year CD if your money is going toward a particular savings goal. For example, you may be getting married in one year, so it would make sense to open a CD with a similar term.
On the other hand, if you’re looking to open a CD with no particular savings goal in mind, you’ll need to consider how long you'll be able to reasonably go without accessing your cash. If you open a 5-year CD and then realize you need to withdraw that cash at the 3-year mark, you'll have to pay a fee, offsetting any interest earned.
And since rates on CDs are fixed, you can take advantage of high rates for an extended period of time by opening a 5-year CD, which is why we recommend comparing short-term and long-term CDs following the Fed's rate cut.
Top 5-year CD accounts
SchoolsFirst Federal Credit Union
APY: 4.26%
Minimum Balance: $500
Marcus by Goldman Sachs
APY: 3.80%
Minimum Balance: $500
Pima Federal Credit Union
APY: 3.50%
Minimum Balance: $250
The Federal Savings Bank
APY: 3.80%
Minimum Balance: $5,000
First Internet Bank
APY: 3.67%
Minimum Balance: $1,000
Lafayette Federal Credit Union
APY: 3.70%
Minimum Balance: $500
Transportation Federal Credit Union
APY: 3.50%
Minimum Balance: $1,000
ECFU Financial
APY: 4.00%
Minimum Balance: $500
Mountain America Credit Union
APY: 3.90%
Minimum Balance: $500
Securityplus Federal Credit Union
APY: 4.00%
Minimum Balance: $1,000
MYSB Direct
APY: 3.90%
Minimum Balance: $500
BMO Alto
APY: 4.00%
Minimum Balance: $0
Seattle Bank
APY: 4.00%
Minimum Balance: $1,000
CoVantage Credit Union
APY: 3.88%
Minimum Balance: $1,000
Credit Human
APY: 3.85%
Minimum Balance: $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
- 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
Bottom line
Since APYs on CD accounts are still fairly high, now is the best time to lock in rates. More rate cuts are expected throughout 2025 and 2026, so saving rates will only get lower over the coming months. Just be sure you won't need to withdraw any funds from your CD before its maturity date, or you'll offset any interest you may have earned.
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