CD rates today, August 23, 2024 (2024)

The rates offered on CDs are influenced by several factors, including the term length (typically longer terms offer higher rates), deposit amounts (some CDs have tiered rates), and, importantly, Federal Reserve interest rates. Understanding these factors can assist you in making informed investment decisions.

CD rates today: earn up to 5.25%

CD rates news 2024

Interest rates on certificates of deposit have surged since 2022 in response to Fed rate hikes. The national average rate for 5-year CDs has climbed to 1.86%, a significant increase from less than 0.50% in June 2022. Many banks now offer even higher rates, with top 5-year CDs boasting APYs over 4% and some 1-year CDs providing APYs well above 5%.

The initial rise in CD rates coincided with Fed efforts to curb inflation. As inflation has decreased from over 9% in mid-2022 to around 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?

Given the recent uptick in interest rates, investing in a CD now has the potential to offer increased returns. However, CD APYs are subject to influence from the federal funds rate, and there is a chance that rates may decline if the Fed opts for a rate reduction as indicated.

Presently, CD rates are at their peak in recent years, reflecting favorable market conditions. Consequently, now might be an opportune moment to consider CD investments for short-term or long-term financial objectives. Depositing a larger lump sum now can enhance your earnings over the CD's duration.

Historical CD rates

In the early 1980s, CD rates soared into double digits, a sharp contrast to today's lower rates. By 2019, however, the APY for a five-year CD had just surpassed 3%.

Throughout the early 2020s, top rates generally stayed below 1% APY. Recently, there has been a period of rising rates, with the best offerings now exceeding 5% APY for 1-year CDs.

How to get a good CD rate

Determining what qualifies as a "good" CD rate involves striking a balance between securing the highest available rate and your willingness to keep funds locked away for the specified duration. For example, opting for a 5% APY CD over five years may not be suitable if you anticipate needing access to your funds sooner or if interest rates rise, potentially leading to diminished overall returns. Generally, rates that surpass the national average are considered advantageous. It's essential to compare rates across different banks to find the best option tailored to your specific financial goals.

Key factors to evaluate when comparing CDs include:

• Term length: Ensure it aligns with your savings objectives and time frame.
• APY: Typically, higher rates are offered for longer terms.
• Minimum deposit: Confirm that you can meet the required initial balance.
• Penalties: Understand the costs associated with early withdrawal before maturity.
• Deposit insurance: Verify that the bank is Federal Deposit Insurance Corp. (FDIC)- or National Credit Union Administration (NCUA)insured to keep your money secure.

Additionally, consider that online banks often provide higher interest rates, but be aware of any minimum balance requirements and associated fees. Opting for a bank rather than a broker can sometimes help avoid unnecessary charges.

Look into offerings from online banks

Online banks and financial technology companies (fintech) typically provide more competitive rates compared to national banks. Large financial institutions primarily generate 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. Additionally, online banks generally operate with lower overhead costs, enabling them to offer better rates to their clients.

Set up a CD ladder

CD ladders are ideal for savers who prefer not to tie up funds for long periods. By spreading savings across CDs with varying maturity dates, you can enjoy both short-term access and higher long-term interest rates.

For example, start by investing $3,000 in three staggered CDs (1-year, 2-year, and 3-year). As each CD reaches maturity, reinvest the funds into a new 3-year CD. This strategy provides yearly access to your money along with the accumulated interest.

Compare CD rates by term length

Currently, CD rates are high for both short-term and long-term options. While APYs are not the only consideration when choosing a financial institution for your CD, staying updated on the highest available rates can help you make a well-informed decision.

Compare rates to top national banks

If you're unfamiliar with many of the institutions mentioned, it's because CDs typically do not generate substantial income for major financial institutions on their own.

Established banks like Chase, PNC, and U.S. Bank focus on attracting customers through more profitable products, such as loans and credit cards rather than CDs. As a result, CD interest rates offered by these banks are often lower compared to those available at smaller regional banks or online institutions. Additionally, securing a competitive rate at these larger banks may require opening additional deposit accounts or meeting higher minimum deposit requirements.

How do CDs work?

A certificate of deposit is a specialized savings account that allows you to earn interest by depositing money for a predetermined period. Unlike traditional savings accounts, which have interest rates that can change with market conditions, a CD offers a fixed interest rate for the entire duration of its term. This stability provides savers with the advantage of predictable returns, especially during periods of elevated interest rates set by the Fed.

Upon maturity, you have the option to withdraw both your initial deposit and the accrued interest. One significant distinction between a CD and a standard savings account is that funds deposited in a CD cannot be accessed before the term expires without incurring an early withdrawal penalty.

Types of certificates of deposit

There are several types of CDs available to cater to different financial needs:

1. Brokered CDs are purchased and sold through brokerage accounts rather than directly from banks or credit unions. They often provide higher APYs since they are issued by banks and then sold to brokerages.
2. 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.
3. Bump-up CDs allow you to request a higher APY if interest rates increase after opening the account. Typically, you can adjust the rate once or twice during the CD's term.
4. 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.
5. Jumbo CDs require a substantial minimum deposit, often starting at $100,000 or more. They generally offer higher APYs than standard CDs.
6. 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

Currently, CD rates are high across both short- and long-term lengths. While APYs are important, they are not the only factor to consider when selecting where to open your CD. However, being aware of the highest available rates can help you make an informed decision.

Frequently asked questions