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Understanding the DepositAccounts 5-Year Online CD (5YrOCD) Index
The 5-Year Online CD (5YrOCD) Index is intended to provide a representative yield that’s available from today’s 5-year online CDs. The Index is the average yield of ten mature 5-year online CD accounts from well-established online banks. To be included in the Index, the 5-year online CD must have at least two years of history with yields that have remained competitive.
Changes in the 5YrOCD Index over the last two years are tracked and compared to the federal funds target rate and to the yields of 5-year Treasury note. Long-term CD rates are affected more by economic expectations that are often first seen in Treasury note yields than they are by the federal funds rate which is a short-term interest rate benchmark.
Recent Changes in the DepositAccounts 5-Year Online CD (5YrOCD) Index
In December, the average 5-year online CD yield had a small monthly gain. The average increased 4.5 basis points, from 3.999% on December 1, 2022 to 4.044% on January 1, 2023. This average is based on the 5YrOCD Index which is the average yield of ten 5-year online CDs from well-established online banks.
At 4.044%, the 5YrOCD Index is at its highest level since the Index began in 2017. Before 2022, the previous high was 3.19% in January 2019.
The December monthly gain was the smallest monthly gain for 2022. In April and May of 2022, the 5YrOCD Index had the largest monthly gains since the start of the 5YrOCD Index in 2017. Since May 2022, the monthly gains have generally been diminishing.
In 2021, 5-year online CD yields changed little until November. From January through the end of October, the 5YrOCD Index increased by only 1.9 basis points. Then in November, the Index gained 15.2 basis points. November 2021 marked a turning point for CD rates indicating that we were past the rate bottom.
In March 2020 when the coronavirus pandemic started to have a major impact on the economy, Treasury yields fell to record low levels and the federal funds rate was lowered to near zero by two emergency FOMC meetings. Banks started responding to the new environment with large reductions to CD rates. The largest declines occurred during the first nine months of the pandemic, from March through November 2020. During this period, the 5YrOCD Index fell by more than 145 basis points.
Although 5-year online CD yields had large declines in 2020, they had maintained a sizable yield advantage over 5-year Treasury notes. This yield advantage disappeared in March 2021. From March 2021 through May 2022, the 5-year Treasury note had a yield advantage over the average 5-year online CD. The advantage increased significantly in early 2022 due to a large yield gain in the 5-year Treasury note. However, the advantage disappeared in July, and since July the 5-year Treasury note and the average 5-year online CD have gone back and forth as the rate leader. On January 1, 2023, the average 5-year online CD yield was back on top, with the yield (4.044%) above the 5-year Treasury yield (3.99%).
5-Year CD Rates
5 Year CD rates are among the highest CD rates in the country and offer solid returns for a fixed investment period. The table above lists the best 5-year CD rates at the top and allows you to filter your results based on investment amount and institution location. Click the plus button to the left of the bank or credit union name to view account features and rate history for the 5 Year CD, or 60 Month CD, offered by that particular institution.
5-Year CD Rate History – Average APY (%) Rate Trend over Time
What is a CD?
CD rates, or certificate of deposit rates, represent the annual percentage yield paid by a financial institution as a return on a time deposit made by a depositor. A CD is unlike a savings account in that it is issued for a fixed period of time, before which funds may be disbursed only by way of an early withdrawal penalty. CDs provide a secure way to grow retirement savings at a fixed rate of interest and can be helpful as a hedge against riskier investments in the same portfolio.
How Some People Use 5-Year CDs
Many investors use a CD calculator as a tool to help them decide whether a particular 5 Year CD is a good investment. CD laddering is a strategy used by some investors to turn the high rates achieved with longer term CDs into regular returns. To build a typical CD ladder, you would buy 5 CDs with differing maturity dates – a 1 Year CD, 2 Year CD, 3 Year CD, 4 Year CD, and 5 Year CD for example. After the first year, when the 1 Year CD expires, take the proceeds and buy another 5 Year CD with them. Repeat this process each year until you have 5 Year CDs expiring every year. This strategy helps you to take advantage of the earning potential of the higher CD rates while maintaining liquidity by giving you yearly access to funds (unless you are willing to take an early withdrawal penalty to access your money sooner).
Brokered CDs
Brokered CDs are not the same as direct CDs and come with downsides (as well as benefits) that differ from the CDs listed in the rate table above. Credit union CD rates can at times be higher than bank CD rates, and online banks tend to offer the highest interest rates among banks overall. At FDIC and NCUA-insured institutions, your deposits are covered up to $250,000, including any CDs you buy from the bank or credit union.