Best CD Rates

While the national average is a good indicator of the direction of rates—and how much they've changed over a period of time—they are not what you should consider when shopping for CDs. Instead, look for the top nationally available rates, which stand far above industry averages.

Take one-year CDs, for instance. The current national average is just 1.36% annual percentage yield (APY). Today's top-paying institution, however, will pay you three to four times that yield on that same one-year commitment. Similarly, compare our top three-year CD rates to the current FDIC industry average of 1.22% APY.

If you have cash, you can park for a period of time, but want to earn more than the best savings and money market accounts will net you, our research on the best nationally available rates in every major CD term can lead you to maximum returns.

Keep in mind that CD yields are still considered taxable as interest income on both the state and federal levels, which will impact the total return you can realize.

Opening a CD is very similar to opening any standard bank deposit account. The difference is what you're agreeing to when you sign on the dotted line (even if that signature is now digital). After you've shopped around and identified which CD(s) you'll open, completing the process will lock you into four things:

1. The interest rate: Locked rates are positive in that they provide a clear and predictable return on your deposit over a specific time period. The bank cannot later change the rate and therefore reduce your earnings. On the flip side, a fixed return may hurt you if rates later rise substantially and you've lost your opportunity to take advantage of higher-paying CDs.
2. The term: This is the length of time you agree to leave your funds deposited to avoid any penalty (e.g., 6-month CD, 1-year CD, 18-month CD, etc.) The term ends on the "maturity date," when your CD has fully matured and you can withdraw your funds penalty-free.
3. The principal: With the exception of some specialty CDs that allow add-on deposits, this is the amount you agree to deposit into the CD, at the time of opening.
4. The institution: The bank or credit union where you open your CD will determine aspects of the agreement, such as early withdrawal penalties (EWPs) and whether your CD will be automatically reinvested if you don’t provide other instructions at the time of maturity.

Once your CD is established and funded, the bank or credit union will administer it like most other deposit accounts, with either monthly or quarterly statement periods, paper or electronic statements, and usually monthly or quarterly interest payments deposited to your CD balance, where the interest will compound.

Smart CD investors have a specific tactic for hedging against rate changes over time and maximizing their return. It's called a CD ladder and it enables you to access the higher rates offered by 5-year CD terms, but with the twist that a portion of your money becomes available every year, rather than every five years. Here's how to do it.

At the outset, you take the amount of money you want to invest in CDs and divide it by five. You then put one-fifth of the funds into a top-earning 1-year CD, another fifth into a top 2-year CD, another into a 3-year CD, and so forth through a 5-year CD. Let’s say you have $25,000 available. That would give you five CDs of varying length, each with a value of $5,000.

Then, when the first CD matures in a year, you take the resulting funds and open a top-rate 5-year CD. A year later, your initial 2-year CD will mature, and you'll invest those funds into another 5-year CD. You continue doing this every year with whichever CD is maturing, until you end up with a portfolio of five CDs all earning 5-year APYs, but with one of them maturing every 12 months, keeping your money a bit more accessible than if all of it were locked up for a full five years.

What makes CDs attractive as an investment vehicle is not their rate of return but their risk-free nature. When you open a CD, you know upfront exactly what interest rate you will earn and for how long. Except for some specialty CDs, the rate on your certificate is guaranteed and locked for the full duration of the certificate, meaning your return is predictable and safe.

Adding to their risk-free nature is the fact that CDs, like other bank and credit union deposit products, are federally insured against bank failures. Depending on the financial institution offering them, CDs are insured by either the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).

CD minimums can run as low as $250 or $500, and you'll find plenty of options with minimums up to $1,000. As for durations, the majority of CDs carry terms of six months to five years, though shorter and longer certificates exist at some banks. Larger deposits and longer terms typically earn higher interest rates, though promotional certificates often break that general rule. The interest rates available on the best-paying CDs are usually in line with the current inflation rate, so virtually any rate higher than that is a good deal. Often, online banks and credit unions offer the best CD rates.