CD rate news 2024

The best CDs currently range from 5.05% to 5.75% — with some promo rates as high as 7.50% — which is higher than average compared with the last 15 years.

But as the Fed begins to see progress on inflation, financial experts anticipate one rate cut later this year. That means CD rates could drop later this year as well.

While the Federal Reserve does not directly set CD rates, it does control the federal funds rate. Commercial banks and credit unions refer to the fed rate to determine their own interest rates on products such as deposit accounts, credit cards and loans. The federal funds rate is 5.25% to 5.50% and has not changed since July 2023.

The ideal time to invest in a CD depends on your financial circumstances and goals. But if you have extra funds to invest, locking in a high-rate CD now could be a smart move.

Current promotional CD rates

Here are three financial institutions that currently offer high-interest CDs with minimal withdrawal penalties and a relatively stable rate history. Banks are listed in order from highest to lowest rate.

What is a certificate of deposit (CD)?

A CD is a type of savings account that locks up a fixed amount of money for a fixed period of time. In exchange, you’ll typically earn higher yields than a traditional savings account.

You determine how much you want to deposit within the bank’s minimum deposit requirements and a maturity date that works for you: CD terms range from one month to five years. A term is the length of time your money stays in a CD, and banks generally charge an interest-rate penalty if you have to cash out early.

As you consider opening a CD, you’ll want to look at these important factors:

• Interest rate. CDs typically have a fixed interest rate, which remains stable during the duration of its term. While a fixed rate guarantees you’ll earn a specific return, you generally won’t be able to take advantage of higher-earning CDs if rates rise.
• Term. Your funds will be tied up for a fixed period, such as six months or five years. You’ll want to have at least three to six months of living expenses in a savings or money market account you can tap in an emergency. That’s because if you need to access the money in a CD before its maturity date, you’ll likely face an early withdrawal penalty.
• Deposit amount. Some CDs have a minimum deposit amount. You typically can’t add more funds once you open a CD, although some speciality CDs allow add-on deposits.

Types of CDs

Banks, credit unions and online lenders offer a range of CDs to fit various financial needs. Here are some popular options to consider.

• Traditional CDs: This is a standard CD with a fixed interest rate and term. You’ll often be paid at a higher rate than a traditional savings account. If you withdraw funds before your CD’s maturity date, you could incur a penalty and lose out on remaining interest.
• Variable-rate CDs: With a variable-rate CD, your interest rate will be affected by four main factors, including the prime rate and the consumer price index (CPI), as well as Treasury yields and market index levels. While you have the potential to earn more if rates increase, you risk earning significantly less if rates drop.
• No-penalty CDs: A no-penalty CD allows you to withdraw funds without penalties before your CD matures. However, some institutions may require you to close your account after making an early withdrawal. Also, rates tend to be less competitive for this type of account.
• Promotional CDs: Some financial institutions offer promotional CDs with special rates to attract deposits. Offers vary by bank and are typically available for a limited time. The rate generally lasts for a short term of less than a year. If you wish to renew the CD, you will likely have to switch to the standard CD rate.
• Jumbo CDs: If you want to deposit a large amount, such as $100,000 or more, you can typically get the highest interest rates by investing in a jumbo CD.
• Step-up CDs: A step-up CD starts with a fixed interest rate and then allows you to earn higher rates during your term with automatic scheduled increases. For example, a 24-month CD might begin with a 0.5% rate and increase by 0.1% every six months.
• Brokered CDs: A brokerage firm can help provide a broader selection of CD options, although extra fees may be involved for financial planning and asset management.

How to choose a CD

If you’re ready to invest in a CD, here are five steps to help you make the right choice.

1. Determine your financial goals

Ask yourself what you hope to gain from investing in CDs. If you want to build an emergency fund, then a high-yield savings account might be a better fit. But if you’re saving for a long-term goal, such as a down payment on a home, then setting aside funds in a CD can help you stay on track.

2. Find a federally insured financial institution with competitive rates

A high-yield CD can help you get the best return on your savings compared with a standard CD. Research rates, and stick to financial institutions backed by the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Administration (NCUA).

Standard coverage is $250,000 per account holder, per insured institution, per ownership category. An ownership category simply refers to who owns an account, such as a single or joint account.

3. Pick a CD type and term

Explore the different types of CDs to find the best options for your long-term financial goals. Then, decide how long you feel comfortable locking away your funds. CD terms commonly range from three months to five years, though some banks may offer other choices.

4. Understand the early withdrawal penalties

Life can be unpredictable, and you may need to withdraw funds before your CD’s term ends. Make sure to review the early withdrawal penalties before investing in a CD so you can be prepared for a worst-case scenario.

One way to prepare for unexpected expenses is to invest in CD ladders, which is a series of CDs with staggered maturity dates. This way, you have CDs maturing at regular intervals.

5. Deposit funds

Banks may have minimum deposit requirements that can vary greatly by financial institution. Some banks don’t require a minimum deposit, while others set a steep minimum of $25,000. A $1,000 minimum deposit can be a common requirement.

Pros and cons of CDs

How to build a CD ladder

A CD ladder is a savings strategy that involves buying multiple CDs and then staggering their maturity dates to allow for regular access to cash without penalties. You may want to spread your funds evenly over several CDs or put larger amounts in a couple of the CDs.

Here’s an example of how someone could invest $15,000 into a CD ladder:

• Take the total investment — in this case, $15,000 — and divide it by five. That means you have $3,000 to invest in five CDs.
• Start by putting $3,000, or one-fifth of your total investment, in a high-earning one-year CD.
• Now you’ll spend $3,000 on each of the remaining four “rungs” of the CD ladder. Here’s how that will look: You’ll invest $3,000 in a two-year CD, $3,000 in a three-year CD, $3,000 in a four-year CD and $3,000 in a five-year CD.
• When each CD matures, you can either cash out or keep your ladder going by reinvesting your savings using the same timeline.

How much does a $10,000 CD make in a year?

Your earning potential with a CD depends on the rate, term and deposit amount. Unlike traditional savings accounts, you can’t keep adding more funds to your CD after opening it.

Here’s a breakdown of how much you could earn with a $10,000 CD using several different rates and terms.

Alternatives to CDs

Although CDs typically earn higher rates than other types of savings accounts, they might not be the best option for your financial goals. For example, if you need regular access to your savings or want to set up automatic deposits, one of the following savings accounts might be a better choice.

• Traditional savings account. Banks and credit unions offer traditional savings accounts, allowing you to link your checking account for quick transfers. While generally best for flexibility, these accounts tend to have low rates compared with other deposit accounts.
• High-yield savings account. You’ll likely find more competitive rates than traditional savings accounts, but accounts may require a minimum balance or charge a monthly maintenance fee. You can typically access the highest rates with an online bank, although some brick-and-mortar banks offer respectable rates.
• Money market account. Rates can be high, but money market accounts may also require steep deposits or limit your monthly transactions. Many money market accounts come with checking account features, such as debit cards and checks for convenience.
• Short-term bonds. These can be ideal for conservative investors wanting a high return over a short period of time. Investments are usually in corporate or other fixed-income securities.
• Brokerage account. A brokerage account allows you to hold savings and invest funds in various ways, such as buying and selling stocks, mutual funds, exchange-traded funds (ETFs) and more. Some brokerage accounts are free, while other accounts charge fees, especially if you use brokerage-assisted services.
• Retirement account. If you want to maximize your long-term savings and take advantage of tax benefits, a traditional IRA retirement account could be a good choice. However, strict rules and penalties apply to early withdrawals.

Frequently asked questions

What happens if I withdraw from a CD early?

The exact penalties will depend on the details outlined for your CD account. That said, federal law determines the minimum penalties for early withdrawals. For example, if you withdraw funds within six days after opening a CD account, you will need to pay seven days of simple interest. You can estimate how much an early withdrawal might cost you with our early withdrawal penalty calculator.

How are CDs taxed?

Any income earned from your CD accounts will be taxed as interest income for the tax year in which it was earned. You can expect to receive a 1099-INT in January outlining how much you earned from interest during the previous tax year. Use this form when filing your tax return.

Should I put my emergency funds in a CD?

Because you’ll want immediate access to emergency funds, a CD is probably not the best choice to store them. You may want to put them in a high-yield savings account or money market account. You could think about dividing your emergency savings between multiple accounts for short-term expenses and using a CD ladder for longer-term expenses.

Do CDs charge fees?

Most CDs are free to open and don’t charge the maintenance fees of some traditional savings or money market accounts. However, brokered CDs may carry commission or asset-based fees. Also, most CDs charge early withdrawal fees if you decide to cash out before the end of the term.

Can you lose money on a CD?

Because CDs have fixed interest rates, the only way you could lose money is with an early withdrawal. Even then, the earned interest might be enough to cover the penalty your bank charges.