CD rates today, October 2, 2024

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If you want to build your savings and don’t mind locking your money away for a set period of time to earn a higher interest rate than a typical savings account, a certificate of deposit (CD) might be a good option. Currently, CD rates are near their highest points in recent years, with many offering annual percentage yields (APY) above 5%. CD rates are influenced by various factors, including the term length (longer terms often provide higher rates), deposit amount (some CDs offer tiered rates), Federal Reserve interest rates, and promotional offers from financial institutions. CD rates today: earn up to 4.95% CD rates news 2024 Interest rates on CDs have surged since 2022, closely following the lead of Fed interest rate hikes. The national average rate for 5-year CDs stands at 1.42%, a significant increase from less than 0.50% in June 2022. Many banks are offering even higher rates, with the top 5-year CDs boasting APYs exceeding 4%, and some 1-year CDs offering APYs close to 5%, though they're tapering off. Initially, CD rates climbed in response to the Fed's measures to combat inflation. However, with inflation easing from over 9% in mid-2022 to 2.5% currently, the Fed lowered the rate by half a point from 5.25-5.5% to 4.75-5.0% at its meeting on September 18. Is it still a good time to open a CD? Given the recent interest rate increases, investing in a CD could yield higher returns. However, CD APYs are influenced by the federal funds rate, which could decrease if the Fed lowers rates later in the year as hinted. CD rates are currently at their peak compared to recent years, reflecting favorable market conditions. Therefore, now could be an opportune time to invest in a CD, allowing you to secure advantageous rates on both short-term and long-term CDs. You could earn substantial interest by depositing a larger lump sum now while rates are high. Historical CD rates In the early 1980s, CD rates soared into double digits, starkly contrasting today's rates. By 2019, however, the APY for a five-year CD was just above 3%. Throughout the early 2020s, top rates generally stayed below 1% APY. Recently, we have seen a period of rising rates, with the best offerings now close to 5% APY for 1-year CDs. How to get a good CD rate Determining a good CD rate depends on balancing the highest rate with your ability to keep funds locked for the term. For example, a 5% APY CD over five years might not be ideal if you need liquidity sooner or if rates rise, leaving you with a lower return. Generally, rates above the national average are worthwhile. Compare rates across banks for your desired term to find the best option. Key factors to evaluate when comparing CDs include: Term length: Ensure it matches your savings goals and timeline. APY: Higher rates are usually offered for longer terms. Minimum deposit: Ensure you meet the required minimum balance. Penalties: Understand the costs associated with early withdrawals. Deposit insurance: Verify Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA) coverage. Additionally, online banks typically offer higher interest rates—but check for any minimum balance requirements and associated fees. Opting for a bank rather than a broker might help avoid unnecessary fees. Look into offerings from online banks Online banks and financial technology companies (fintechs) typically offer better rates than national banks. Large financial institutions generate revenue primarily through interest on loans, fees, and investments in securities. Alternatively, smaller banks and online fintech companies attract new customers by offering competitive APYs on deposit accounts. Additionally, online banks usually have lower overhead costs, enabling them to provide better rates to their clients. Set up a CD ladder CD ladders are ideal for savers reluctant to lock in their money for long periods of time. By splitting savings across CDs with varying maturities, you can enjoy both short-term access and higher long-term rates. For example, you could invest $3,000 in three staggered CDs (1-year, 2-year, and 3-year). As each CD matures, reinvest the money into a new 3-year CD. This strategy provides annual access to your money plus the interest earned. Compare CD rates by term length Currently, CD rates are high for both short-term and long-term options. While APYs aren't the only factor to consider when choosing an institution for your CD, being aware of the highest rates available today can help you make an informed decision. Today's top 3-month CD rates Learn more about the best 3-month CD rates available today. Today's top 6-month CD rates Learn more about the best 6-month CD rates on the market today. Today's top 9-month CD rates Read more about the best 9-month CD rates available today. Today's top 1-year CD rates Learn more about the best 1-year CD rates available today. Today's top 18-month CD rates Learn more about the best 18-month CD rates on the market today. Today's top 2-year CD rates Read more about the best 2-year CD rates available today. Today's top 3-year CD rates Learn more about the best 3-year CD rates available today. Today's top 5-year CD rates Learn more about the best 5-year CD rates on the market today. Today's top 10-year CD rates Read more about the best 10-year CD rates available today. Today's top jumbo CD rates Read more about the best jumbo CDs on the market today. Compare rates to top national banks If you're unfamiliar with many of the bank names mentioned above, there's a straightforward reason. CDs typically don't generate substantial income for major financial institutions on their own. Large, national banks like Chase, PNC, and U.S. Bank focus on attracting customers through more profitable products, such as loans and credit cards, rather than CDs. As a result, the interest rates offered on CDs at these banks are often much lower than those available at smaller regional banks or online institutions. Additionally, to secure a good rate at these larger banks, you may be required to open other deposit accounts or deposit much higher minimums. Chase Bank CD rates Read more about Chase Bank CD rates. Citibank CD rates Discover CD rates Learn more about Discover’s CD rates. Marcus CD rates Read more about Marcus CD rates. PNC CD rates Truist CD rates How do CDs work? A certificate of deposit is a specialized savings account where you earn interest by depositing money for a predetermined length of time. Unlike traditional savings accounts, which have interest rates that fluctuate with market conditions, a CD offers a fixed interest rate for the entire term. This stability allows savers to benefit from higher returns, especially during periods of elevated interest rates set by the Federal Reserve. When your CD reaches maturity, you gain access to both your initial deposit and the accrued interest. A key distinction between a CD and standard savings account is that funds deposited in a CD are inaccessible for withdrawal until the term concludes. You will incur an early withdrawal fee if you need to access the money early. Pros Higher APY than savings accounts Fixed rates Flexible term lengths Cons Lower returns than stocks APY locked, no inflation adjustment Illiquid; penalties for early withdrawals Types of CDs Different types of CDs serve various needs: Brokered CDs are purchased and sold through brokerage accounts rather than directly from banks or credit unions. Brokered CDs typically offer higher APYs than traditional CDs because they are issued by banks and then sold to brokerages. Callable CDs include a call feature that allows the issuing institution to terminate the CD before its maturity date. If this feature is exercised, investors receive their principal and any accrued interest up to the call date. Bump-up CDs allow you to request a higher APY if interest rates rise after you've opened the account. You can usually adjust the rate once or twice during the CD's term. No-penalty CDs do not impose penalties for early withdrawals before maturity. This type is less common and may offer lower APYs than traditional CDs. Jumbo CDs require a minimum initial deposit, often starting at $100,000 or more. They generally offer higher APYs than standard CDs. Variable-rate CDs have an APY that changes in response to prevailing interest rates. These CDs carry more risk than traditional CDs because decreasing interest rates before maturity can lead to a lower yield. The takeaway Currently, CD rates are high for both short and long terms. While APYs are important, they're not the only factor to consider when deciding where to open your CD. However, being aware of the highest available rates can help you make a well-informed decision. Frequently asked questions Is investing in a CD right for me? While CDs may not be suitable for everyone, they are particularly attractive to risk-averse individuals seeking a stable investment. For those with short-term financial goals or nearing retirement, CDs provide a reliable way to accumulate funds steadily until needed, such as for retirement or major purchases. How is CD interest taxed? Interest earned from CDs is taxable and must be reported on Form 1099-INT if it exceeds $10 annually. Early withdrawals from CDs incur penalties, which are also reported on your tax form. How does a CD differ from a savings account? CDs lock in an interest rate for a fixed period and restrict access to funds, whereas savings accounts provide more flexibility despite potential fluctuations in interest rates. However, maintaining both a savings account and a CD can be beneficial. Excess funds can be transferred to a CD to earn higher interest over a set term or to save for specific future expenses. How much does a $10,000 CD make in a year? Investing $10,000 in a 2-year CD with a 2.50% APY would yield $250 in interest in the first year alone, resulting in $10,506 at maturity after the second year. However, withdrawing funds before maturity incurs an early withdrawal penalty, which could result in forfeiting part or all of the earned interest and possibly a portion of the principal. Are CDs FDIC-insured? Yes, CDs are protected by the FDIC. This federal agency insures all types of bank accounts held by its members, such as savings accounts, money market accounts (MMAs), and CDs, up to $250,000 per customer per bank. This insurance secures your funds in the unlikely event of a bank failure. If you opt for a CD from a credit union, verify that it is insured by the NCUA, which functions similarly to the FDIC but specifically insures credit unions. Read more To earn the max on your deposit, check our ranking of the best CD rates. Our ranking of the best jumbo CD rates can help you maximize your earnings on big deposits. Short-term deposit investors can find a great rate on our list of the best 3-month CDs. The best 1-year CD rates ranking can help you earn a tidy return on a 12-month deposit. Choose one of the best high-yield savings accounts to boost your APY.

Reporting By Abigail Rueger

Fortune via Reuters Connect