Introduction to CDs
It’s still a good time to earn a great return on a certificate of deposit, but don’t wait to take action. After declining in 2024 as the Federal Reserve cut rates, average CD yields stabilized in early 2025 thanks to the central bank hitting pause on more rate changes for several months. However, the Fed finally took action with its first rate cut of 2025 after meeting Sept. 16-17, then made a second cut in October.
Today’s Best CD Rates
The best CD rates yield up to 4.20% annual percentage yield. If you choose to open an account today, you could lock in high rates for years, depending on the term that best meets your financial goals. Experts expect the Fed may cut rates again when it meets in December, so don’t wait to invest. The highest CD rate of 4.20% is offered by Bread Savings on its six-month CD. Newtek Bank also offers a six-month CD with a 4.20% APY but requires a higher minimum deposit.
Pro Tip
Looking for the best CD to fit your investment needs? See rates from top institutions like Wells Fargo, Capital One, Chase, Bank of America, Discover Bank, Northern Bank Direct, Ally Bank, Newtek Bank, Popular Direct, and Citibank.
Comparing CD Rates at Top National Banks
If you’re unfamiliar with most of the names mentioned above, there’s a straightforward reason why: CDs typically don’t yield substantial income for major financial institutions by themselves. Established banks like Chase, PNC, and U.S. Bank prioritize attracting customers through more profitable products like loans and credit cards, rather than CDs. Consequently, the APYs offered on CDs at these banks are often much lower compared to those available at smaller regional banks or online institutions, and to get a good rate, you may be required to open other deposit accounts or deposit much higher minimums.
CD Rates News 2025
Investors should understand that average CD rates closely track Fed monetary policy decisions, specifically changes to the fed funds rate. It’s essential for CD investors to follow the ebb and flow of the central bank’s policy decisions to plan for changes in rates. The federal funds rate currently stands at 3.75%-4.00%. Last year, the Fed cut interest rates three times, leaving fed funds at 4.25%-4.50% as of December 2024. High inflation left over from the post-pandemic period was cooling off, and the FOMC reduced rates to help the economy stay on track.
Historical CD Rates
In the early 1980s, CD rates hit double digits thanks to surging inflation and high interest rates. But by 2019, the APY for a 5-year CD hovered slightly above 3.00%. Until the early 2020s, top rates generally remained below 1.00% APY. In recent times, we experienced a period of increasing rates, with the best offerings exceeding 5.00% APY for 1-year CDs.
How to Get a Good CD Rate
Determining what a good CD rate looks like is subjective. It depends on how much money you have to invest, how long you can leave it locked up in a certificate, and what prevailing market rates are when you intend to open an account. For instance, a 5.00% APY CD over five years might not be the right choice if you need liquidity sooner or if rates rise, leaving you with a lower return. Generally, rates above the national average are advantageous. Compare rates across banks for your desired term to find the best option.
Factors to Evaluate When Comparing CDs
Key factors to evaluate when comparing CDs include:
- Term length: Ensure they match your savings goals.
- APY: Higher rates are available for longer CD terms.
- Minimum deposit: Ensure you can meet minimum deposit requirements.
- Penalties: Understand early withdrawal costs, in case you need to withdraw money before a CD matures.
- Deposit insurance: Always verify that your bank or credit union of choice has Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA) coverage.
Look into Offerings from Online Banks
Online banks and fintechs typically offer better rates than national banks. Large financial institutions primarily generate revenue through interest earned on loans, fees, and investments in securities. In contrast, smaller banks and online fintech companies actively attract new customers by offering competitive APYs on deposit accounts.
Setting Up a CD Ladder
CD ladders suit savers hesitant to lock funds for long terms. Splitting savings across CDs with varying maturities offers a blend of short-term access and higher long-term rates. For example, if you begin by investing $3,000 in three staggered CDs (1-year, 2-year, and 3-year), then as each matures you reinvest the money in a 3-year CD. With this plan, you get access to your money (plus the interest you’ve earned) every year.
Types of Certificates of Deposit
Various CD types cater to different needs, such as:
- Brokered CDs are bought and sold via brokerage accounts rather than banks or credit unions.
- Callable CDs include a call feature allowing the issuing financial institution to end the CD before its maturity.
- Bump-up CDs allow you to request a higher APY if interest rates increase after you’ve opened your account.
- No-penalty CDs do not impose penalties for withdrawing funds before maturity.
- Jumbo CDs usually require a minimum initial deposit of at least $100,000 but generally provide higher APYs than standard CDs.
- Variable-rate CDs offer changing APYs that are indexed to prevailing interest rates.
Conclusion
In conclusion, while CD rates may fluctuate due to Federal Reserve decisions, there are still opportunities to secure advantageous rates on both short-term and long-term CDs. By understanding the different types of CDs, comparing rates across banks, and considering factors like term length and minimum deposit, you can make an informed decision that meets your financial goals. Whether you’re looking for a traditional CD or something more specialized like a bump-up or no-penalty CD, there’s a certificate of deposit out there for you. Always remember to verify the bank’s deposit insurance and to read the fine print on any penalties for early withdrawal. With the right CD, you can earn a great return on your investment and work towards your financial future.
