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Choosing the right certificate of deposit, or CD, can make a big difference in how much interest a person earns over time.
With so many options available, it’s essential to look for the highest annual percentage yield (APY) that suits the term you need.
While one-year CDs often have the best rates, longer terms might offer better returns even if their rates are lower.
Some banks also provide more flexible options, like no-penalty CDs, where funds can be accessed before maturity without extra charges.
These offer a balance between earning interest and having access to money when needed.
Key Takeaways
- Higher APYs can be found in shorter-term CDs.
- No-penalty CDs offer flexibility without early withdrawal fees.
- Longer-term CDs might yield more despite lower rates.
2024 Updates on Top CD Rates
CD Rates in Shift: As 2024 unfolds, consumers are noticing that certificates of deposit (CD) with rates over 5% annual percentage yield (APY) are becoming rare.
The leading offer for a one-year CD stands at 4.84% APY from First Internet Bank. Promotional offers for terms less than a year haven’t filled this gap.
Recent Trends: Throughout early 2024, CD rates began to decrease gradually. This change came after a period during which both banks and credit unions boosted CD rates.
They did this in response to almost a dozen rate hikes by the Federal Reserve over the last couple of years.
Future Forecasts: There’s talk about the Federal Reserve potentially making a rate cut in their next September meeting, marking the first such cut since March 2020. Should this cut happen, new CD rates could drop even more.
Savings Strategy: Deciding to invest in CDs is driven by individual savings goals.
The current economic scenario suggests considering high CD rates while they are still available could be a good choice.
For a detailed guide, there are lists available that showcase optimized choices based on specific rates and terms.
Understanding a CD: What’s It All About?
A CD, or Certificate of Deposit, is a type of bank account. People put money in these accounts and agree not to touch it for a certain period, from a few months to several years.
In return, they get a fixed interest rate, usually higher than regular savings accounts. CDs used to be physical paper certificates, but now they’re much like any other online banking tool, making them easier to manage.
Picking a Certificate of Deposit
Choosing a CD involves considering several factors to make the best decision.
Picking Several CDs
Opting for multiple CDs can be a good choice if choosing just one seems challenging.
This method is known as creating a CD ladder. By opening several CDs with varying terms, a person can take advantage of a mix of short- and long-term CD rates.
This strategy allows them to have CDs maturing at different times, providing a balance between having cash on hand and earning higher interest.
For example, you buy one CD for six months, another for a year, and another for two years. As each CD matures, you can either reinvest the money into another long-term CD or use the cash if needed.
This approach ensures that some funds are available periodically, while still capturing the benefits of high-interest rates offered for longer terms.
Key points of CD laddering:
- Access funds as each CD matures.
- Benefit from varying interest rates.
- Flexibility to reinvest or spend matured funds.
Times to Think about CDs
There are certain times when CDs might be especially useful in a financial portfolio.
When looking to set aside money for a large purchase expected in the next five years, like a car or home, CDs can be appealing.
They also provide a safe place to store a sudden sum of money, preventing unnecessary spending.
CDs are excellent for those looking to grow their savings without exposing them to stock market fluctuations.
This makes CDs particularly attractive to folks approaching or in retirement, as they offer steady returns with minimal risk.
A list of reasons to consider CDs:
- Saving for a big purchase soon.
- Keeping a windfall secure without spending it.
- Seeking stable returns without stock market risks.
Earnings from a $10,000 CD Over One Year
Investing $10,000 into a Certificate of Deposit (CD) with a 5% annual percentage yield (APY) will earn $500 by the end of the year.
For those interested in shorter-term investments, a 6-month CD at the same rate would yield slightly less than $250, making it less lucrative if held for only half a year.
Three key factors affect how much a CD earns: the interest rate, how long the CD’s term is, and the initial deposit amount.
Once the money is deposited into a CD, no additional funds can be added, setting it apart from regular savings accounts.
Here’s a simple comparison of potential earnings from a $10,000 CD at different rates over one year and six months:
| Starting Balance | APY | Earnings in 1 Year | Earnings in 6 Months |
—|—|—|—|
| $10,000 | 3.00% | $300 | $149 |
| $10,000 | 4.00% | $400 | $198 |
| $10,000 | 5.00% | $500 | $247 |
| $10,000 | 5.30% | $530 | $262 |
Tip: A lower rate over a longer period can beat a higher rate for a shorter time.
For example, a 1-year CD with a 4.5% APY will earn $450, outperforming a 6-month CD with a 5% APY, which only brings in about $247.
Keep this in mind while considering various CD options.
Other CDs: Special Offers and Flexibility
Promotional CDs offer unusual term lengths or special rates.
These rates might be higher than those of normal CDs. It’s important to check the renewal terms because they can switch to lower rates when they renew.
No-penalty CDs provide freedom for early withdrawals without fees after an initial period.
They are not as common as other CDs, and their interest rates tend to be lower than high-yield CDs for the same duration.
Despite the lower rates, these CDs can be a good option for those who want more access to their money without penalties.
Promotional Rates for CDs
Special CD rates often show up on bank websites as “CD specials” or under a “promotional rate” label.
These usually have unusual terms instead of the usual six months, one year, etc.
A close look at available offers reveals some noteworthy rates starting in late July 2024. When known, expiration dates for these promos are typically listed.
Top Rates for No-Penalty CDs
A no-penalty CD lets people withdraw their money early without facing fees. This makes them a practical choice for those who want the benefits of a higher yield from CDs but might need access to their funds sooner than planned.
While high-yield savings accounts offer similar rates, no-penalty CDs have the advantage of a fixed rate even if market rates go down.
Here’s a quick look at some standout options:
Ally Bank® (FDIC Member): Offers a 4.00% APY for an 11-month term with no minimum deposit required.
CIT Bank: Provides a 3.50% APY for an 11-month term, requiring a $1,000 minimum deposit.
Choosing the right no-penalty CD involves balancing rate benefits with any specific financial needs or plans one might have.
Alternative CDs: Retirement and Large Deposit Options
Some CDs come with special requirements that make them a bit different from the standard options found at most banks or national credit unions. These alternatives might be suitable for certain types of savers.
Retirement Savings CDs: These are designed for people’s retirement funds who want to avoid risks, especially if they are nearing or already in retirement.
They offer tax perks similar to an individual retirement account and come with the steady interest of a CD.
Large Deposit CDs: Also known as Jumbo CDs, these require a hefty minimum deposit, usually starting at $100,000.
They aren’t available everywhere, and it’s essential to note that their rates might not always be the best available.
Not every CD available at credit unions is accessible to everyone. Credit unions might have specific membership criteria, such as living in a particular area or being part of a certain group. These are sometimes called share certificates.
Different Options Instead of CDs
If CDs aren’t quite right for someone, there are other options that might fit better.
High-yield savings accounts offer interest rates that are similar to CDs. They’re flexible, allowing money to be added or withdrawn easily.
Money Market Accounts work a bit like savings accounts but usually need a larger initial deposit.
They also permit adding and withdrawing funds over time. These accounts might come with monthly fees unless certain balance requirements are met.
Bonds represent another choice.
By purchasing a bond, an investor is essentially lending money to a business or the government. In return, they receive regular interest payments over a set period.
