One-year certificates of deposit (CDs) are good places to stash cash if you pick the right one. The best 1-year CD rates are paying over 5%, far above the national average of 1.85%.
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A CD is a deposit account in which you agree to leave your funds for a set period of time, called the “CD term.” In exchange, the bank pays a fixed interest rate, called the “annual percentage yield” (APY).
This rate is often higher than what you can get from traditional savings accounts. But if you withdraw money from a CD before its maturity date, you could lose some of the interest earned as an early withdrawal penalty.
Some banks automatically renew your CD when it matures, rolling the money into a new CD. In that case, there may be a 7- or 10-day grace period during which you can withdraw your funds without penalty before they are locked in the new CD.
How are CD rates trending?
One-year CD rates climbed steadily over the past year and have now leveled off. This could mean that now is a good time to lock in these high yields, especially with the Federal Reserve expected to drive interest rates lower across the market through 2026. On the other hand, if you think inflation will remain elevated, you could wait to see if rates move higher in the near future.
You can find 1-year CDs at banks and credit unions. Brokerage firms also sell CDs, called brokered CDs. While online banks and credit unions tend to offer higher rates, you might be able to negotiate a better deal with a broker, so it's worth considering both types.
If you're buying a brokered CD, make sure it's federally insured — by the Federal Deposit Insurance Corp. (FDIC) if purchased through a bank or by the National Credit Union Association (NCUA) if bought through a credit union.
You'll also want to look out for fees, such as account maintenance fees, in addition to early withdrawal penalties. Review your bank's or credit union's fee schedule so you know what to expect.
Comparison shopping is key to getting the best 1-year CD. Consider the following points:
A 1-year CD often provides higher interest rate yields than savings accounts but with less risk than stock market investments, which could lead to higher returns.
Also, one-year CDs usually pay better than shorter-term CDs, such as those with 3- or 6-month terms. In fact, 1-year CDs currently have the highest national average APY of any CD, even compared to 24- or 60-month CDs.
However, this might not always be the case. Rates can change daily, so if you like the current selection, invest now to lock in these rates in case they decline.
Of course, rates may rise in the future, so do some research and invest based on where you think the financial markets are headed.
CDs can be great places to put your cash to work, but they aren't the only savings vehicles available. It's important to consider all your options before deciding on a CD.
High-yield savings accounts are another type of deposit account offered by banks and credit unions. They generally offer much higher rates than traditional savings accounts with APYs that can be similar to those on CDs — but you don't have to lock up your cash for a set period of time. Still, banks and credit unions may limit how many transactions you can make each month.
Money market accounts, also offered by banks and credit unions, operate like checking accounts with ATM cards and check-writing capabilities, but they pay rates close to those of high-yield savings accounts. They can be a great solution if you need access to your money but still want to earn solid interest rates.
I bonds are savings bonds issued by the U.S. Treasury. Like CDs, I bonds pay regular interest, except that the interest rate can rise or fall with inflation. When consumer prices rise, your CD yield will likely rise, and when prices fall, the yield will too.
The current interest rate on I bonds is 4.28% compared to over 5% for the best 1-year CD rates. Also, you need to hold onto an I bond for 12 months to receive your full interest earned.
You can invest in CDs through a bank, credit union or brokerage firm. First, decide which CD term works best for you. Then, find the financial institution with the best rate and lowest fees. Finally, open a CD account and buy your CD.
You can have as many CDs at one bank as you'd like. However, FDIC and NCUA insurance only covers up to $250,000 for each type of account at a given institution. So, if you have $300,000 worth of CDs at one bank, you're only insured for $250,000. However, you can be fully covered if you have $250,000 at one bank and $50,000 at another institution.
CDs are federally insured if they're issued by FDIC- or NCUA-covered institutions. The FDIC insures deposits at banks, while the NCUA insures deposits at credit unions. These corporations cover up to $250,000 per person, per account type at each institution.