Best 6-Month CD Rates

Certificates of deposit (CDs) are financial products that provide a fixed rate of interest on your deposit as long as you leave your money with the bank or credit union for a specified period of time.

CDs come in maturities as short as three months and as long as ten years. In general, the longer the duration of the CD, the higher the rate of interest the financial institution is willing to offer. Although 6-month CDs (and even 9-month certificates) don't tie up your money for very long, they also don't offer the kind of yields you would find with a longer maturity.

Virtually all CDs are offered by federally insured banks or credit unions. Almost all bank certificates are protected by FDIC insurance, while those offered by credit unions are typically guaranteed by the NCUA. This means that deposits up to $250,000 are secure, even if the institution itself falls into financial trouble. It's always a good idea to check that the bank or credit union offers this protection. Just look for the FDIC or NCUA logo.

Depository institutions set their own interest rates for CDs, and those rates can differ dramatically from one bank or credit union to another. According to the data we compile from about 200 CD-issuing institutions across the country, the top certificates pay three or four times more than the industry average for products of the same duration, and sometimes even eight to ten times more. So it's a good idea to shop around and find one that pays on the higher end of the spectrum.

Every CD has a specific maturity, the date when you're allowed to withdraw your funds without paying a penalty. Banks and credit unions typically offer a range of certificates that appeal to customers with either a short-term savings horizon (as is the case with a 6-month CD) or a long-term horizon.

For each CD duration, the institution will publish the annual percentage yield, or APY, which reflects the percentage of interest paid on the account, given the nominal interest rate and the frequency with which that interest is compounded.

Most CDs use compound interest, which slightly increases the yield. In the case of a certificate that compounds daily, the annual interest rate is divided by 365 and multiplied by the balance to determine the interest payout. That daily interest accrual is then added to the balance when calculating the next day's interest. Interest is usually credited to the account monthly or quarterly.

Most financial institutions will deduct some of the interest that's accrued in your account if you withdraw funds from a CD before the maturity date. Losing three, or even six, months' worth of interest is fairly typical in the case of a 6-month CD, so there's a strong incentive to leave your money untouched until the certificate reaches maturity.

Some places offer "penalty-free" CDs, but there's a rub: they tend to offer lower yields than standard CDs. What's more, they often require that you pull out the entire balance and close the account if you make an early withdrawal.

All banks and credit unions charge a penalty for early CD withdrawals. Investigating whether an institution's penalty policy is mild, reasonable, or onerous is important before you commit to a CD, and it can help you choose between two otherwise comparable certificates.

CDs tend to offer significantly higher yields than traditional savings and money market accounts, even in a low-interest rate environment. A 6-month CDs may be a good option if you know that you won't need access to your funds for at least six to nine months. That includes people saving for a down payment on a home or setting aside funds for a big trip.

Like savings accounts, almost all CDs are FDIC- or NCUA-insured. So you can't lose your principal at one of these institutions as long as your deposit doesn't exceed $250,000. By contrast, investing in stocks and even corporate bonds can be risky in that short of a time window. Should they lose value over a six-month stretch, you'll have to incur a loss.

Perhaps the greatest disadvantage is that you cannot access your money in an emergency, at least without penalty, if you've saved it in a CD. You might also be stuck with a lower interest rate than the prevailing rate if you lock in to a rate when you establish the CD, then the economy changes and rates rise nationally.

One alternative to CDs that you might consider for short-term needs are high-yield savings accounts like those offered by Ally, Marcus and other online banks. Generally, their yields are only slightly lower than those of CDs, but there's no limitation on when you can pull your money out. Just make sure you check their minimum balance requirements and fee schedules to make sure you don't take a hit when and if you make a large withdrawal.