Certificates of deposit (CDs) can be a great choice for individuals looking for a low-risk investment to generate interest on cash they don’t need to use immediately. CD rates held mostly steady over the past week, according to data from Curinos, as the Federal Reserve put a pause on its effort to curb inflation by raising short-term rates.
Three-month CD rates
Rates on three-month CDs have increased by one basis point to 1.19% APY (as of December 7, 2023). The average APY is up three basis points from a month prior.
The current national high for a three-month CD is 5.83%, which would earn more than $355 in interest with a $25,000 deposit.
Six-month CD rates
The top six-month CDs can offer the best of both worlds: strong interest rates and a short-term commitment.
The national average APY for six-month CDs is 1.63%, which is up slightly from last week and four basis points higher than a month ago.
The current top national rate for a 6-month CD is 5.59%, according to the data available from Curinos. But you may be able to find better deals by shopping around.
You’d earn almost $690 in interest if you put $25,000 in a six-month CD with a rate of 5.59%.
One-year CD rates
If you’re willing to lock away your savings for 12 months, you can pick up even better rates. One-year CDs can give you returns as high as, or even higher than, longer-term options.
Rates on 12-month CDs are moving up. The national average APY is 1.86%, up one basis point from last week and three basis points from a month before.
The current national high for a 12-month CD is 5.70%, which would earn around $1,420 in interest with a $25,000 deposit.
Two-year CD rates
Rates on two-year CDs have remained fairly stable.
The national average APY is 1.65%, the same as a week ago and a month ago.
The current national high for a 24-month CD is 5.35% APY. Locking in a rate close to this high will maximize your returns on this longer-term investment.
If you invest $25,000 in a 24-month CD at the high rate of 5.35% you’d earn roughly $2,750 in interest.
Three-year CD rates
The national average APY for a three-year CD stands at 1.57%, which is the same as last week and up from 1.56% a month ago.
The highest rate was 5.50%, which would net almost $4,353 in interest if you invested $25,000.
Methodology
To establish average certificate of deposit (CD) rates, Curinos focused on CDs intended for personal use. CDs that fall into specific categories are excluded, including promotional offers, relationship-based rates, private, youth, senior, student/minor, affinity, bump-up, no-penalty, callable, variable, step-up, auto transfer, club, gifts, grandfathered, internet-only and IRA CDs. The average CD rates quoted above are based on a $25,000 deposit.
Frequently asked questions (FAQs)
A CD ladder helps you take advantage of higher rates offered by longer terms without tying up your money indefinitely.
For instance, let’s say you have $12,000 to invest and decide to create a ladder of three CDs. You invest $4,000 each into one, two and three-year CDs. When the one-year CD matures, you convert your principal and earned interest to the higher-rate 36-month CD, and do the same with the 24-month CD the next year. This way, you’ll eventually end up with three 36-month CDs with high APYs, with one maturing each year.
Here’s how you can build your own CD ladder:
- Split the amount you want to invest by the number of CD terms you’d like.
- Research the best CDs to find top providers and the best rates for various lengths.
- Set up the CD accounts you’ve chosen.
- As the CDs mature, reinvest the cash into longer-term CDs.
The second step is crucial. Just because the Fed has raised interest rates doesn’t mean you’ll get the same or even similar rates from different financial institutions for the same CD term.
Generally, the earnings you make from your CDs are considered taxable income by the IRS. If you earn $10 or more, the financial institution should send you (and the IRS) a yearly 1099-INT form reporting your interest earnings. Even if you don’t receive a form, you’re still required to report the income.
For earnings of at least $1,500, you’ll need to itemize your interest income sources on Schedule B of the 1040 form. The silver lining is that there are some exceptions, but they mainly apply to government-issued investment vehicles.
The tax amount you pay depends on your specific marginal tax bracket.
Interest income from treasury bills, notes, and bonds, like I bonds, is exempt from state and local income taxes.
A basis point is the term used to describe one hundredth of one percentage point. Therefore, if the yield on a CD increased from 1.50% to 1.60%, it increased by 10 basis points.
