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The best certificates of deposit — more commonly called CDs — guarantee a high rate of return on your principal at the end of an agreed-on term. Typically, the longer the term of your CD, the higher the rate of return on your deposit. CDs are a low-risk savings choice for money you don’t need to access immediately or regularly.
The best CD rates for March 11, 2024
Online or digital banks offer the highest CD rates and terms with yields that far exceed the FDIC’s national average CD annual percentage yield (APY) that ranges from 1.83% APY for a one-year term to 1.40% APY for a five-year term.
A CD’s fixed rate also means your earnings are protected from market fluctuations, offering the potential to protect your money against inflation, balance out riskier investments or diversify your portfolio as you save or plan for retirement. And money saved in these accounts are insured for up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) — or the National Credit Union Administration (NCUA), if your CD is with a credit union.
CD rates in the news
CD rates tend to correlate with the target interest rate set by the Federal Reserve. This Fed rate sets a benchmark that affects rates on deposit accounts, loans and other financial products. Typically, as the Fed rate rises, so do APYs on savings products like CDs.
Last month’s announcement from the Federal Reserve keeps the federal target interest rate at 5.25% to 5.5% after 11 consecutive increases from March 2022 to July 2023. Recent comments from Federal Reserve Chair Jerome Powell indicate rates are likely to be cut in 2024, which has the potential to push CD rates lower — making today an ideal time to lock in rates before they drop.
Average national deposit rates on CD products
The FDIC tracks monthly average interest rates paid on certificates of deposit and other deposit accounts. The FDIC — short for Federal Deposit Insurance Corporation — is the independent government agency created by Congress and charged with maintaining stability and public confidence in the U.S. financial system, including providing insurance on consumer deposit accounts.
The FDIC reports these latest average national deposit rates on a $10,000 minimum deposit as of February 20, 2024:
1-month CD — 0.23%
3-month CD — 1.69%
6-month CD — 1.53%
12-month CD — 1.83%
24-month CD — 1.54%
36-month CD — 1.40%
48-month CD — 1.32%
60-month CD — 1.40%
How to compare CDs
When choosing the best certificate of deposit for your circumstances, compare these key factors against your specific savings or financial goals:
Term length. A CD is ideal for saving toward a specific goal with money you’re not likely to need until the account matures. Look to shorter terms for saving toward, say, a family holiday or new appliances. Terms of one to five years or longer can help you lock in today’s highest APYs before interest rates are expected to drop.
Rate of return. Look for the highest APY for the term you’re interested in. The APY is the the amount of interest the CD earns in a year — including compounding. Unlike a savings account, CD rates are fixed, meaning they won’t change over your term.
Minimum deposit. While you can find CDs without minimum starting deposits, most CDs require $100 to $1,000 to open an account. Generally, if you have the money for a higher initial deposit, you can earn a higher APY — just be sure that amount isn’t a hardship on your budget.
Type of bank or financial institution. Today’s highest rates are offered by digital banks, with few exceptions among traditional brick-and-mortar banks or credit unions. If you aren’t comfortable with an online-only bank, look to a high-yield savings account or money market account offering a high rate without withdrawal penalties.
Penalties and fees. Life happens, and you might find yourself needing to tap into your money before the CD matures. Early withdrawal penalties are typically expressed in months of interest you’re giving up — for example, 90 days of interest for CD terms of up to 24 months. Typically the longer the term, the higher the penalty.
Benefits of a CD
Guaranteed returns. With a CD, you make one deposit and earn a guaranteed interest rate over your term that’s yours after the CD matures.
Save at higher rates than traditional accounts. Many banks and financial institutions offer CDs at rates that are higher than you’ll earn with the average savings or money market account — with digital and online banks offering the highest rates on average.
Multiple terms. You can find CD terms of three months to five years or more. Rates for six-month CDs can outpace the average bank account, and longer terms offer rates comparable to the best high-yield savings accounts.
Drawbacks of a CD
Penalty for early withdrawals. If you need to access your money before your CD term expires, you face fees equal to several months of interest — as much as three to six months’ worth, depending on the account.
Not the highest investment returns. CDs are a safe way to steadily earn interest, but you stand to earn more over the long term through stocks, bonds or securities. And by locking your money in a CD, you could miss out if average rates increase.
You can’t add more money. After your CD locks, you aren’t able to add to your balance until after the CD matures — at which point, you can move your money to another account or roll it over to a new CD.
Alternatives to a certificate of deposit
A certificate of deposit isn’t the only low-risk way to earn interest on your savings. Look to these alternatives that offer safe, steady returns — with the flexibility to add to or withdraw your money without penalty.
High-yield savings account. An HYSA offers a way to quickly grow your savings investment at rates of 5% APY or higher with no penalty for withdrawals.
Money market account. Also called a money market savings account, the rate on an MMA can beat those of traditional savings accounts, with the same access to your money.
Bond. A bond is a fixed-interest security that acts like a loan, only you’re lending your money to a company or the government that pays you interest on your investment — at rates that can average higher than an HYSA or MMA.
Frequently asked questions about CDs
How do banks make money with a CD?
Banks charge higher interest rates on money it lends out than the interest it pays on customer deposit accounts. The difference is called a spread, and it’s what banks rely on to make money. Unlike a traditional savings account that allows for flexible movement of your money without penalty, a CD requires you to lock in your deposit over a specified period of time, returning your principal plus interest after the account matures. That lock-in period — and penalties that discourage your early withdrawal — allows a bank to better plan how long it has to make money off your deposit, and it’s typically willing to pay a little more for that reliability.
What is a no-penalty CD?
A no-penalty CD — also called a liquid CD — is like a traditional CD through which you lock in a deposit for a guaranteed rate of return over a stated period of time, but with the flexibility of withdrawing your money without penalty before the CD matures. This flexibility comes with trade-offs, however, including lower rates of return than a traditional CD. With rates at historic highs, a high-yield savings account may offer comparable or even higher rates than a no-penalty CD with the same flexibility.
