Certificates of deposit (CDs) can be a good choice for savers searching for solid returns on money not needed at the moment. CD rates have mostly held tight over the past week but remain much higher than last year’s levels as banks gear up for the next Federal Reserve meeting which could result in yet higher borrowing costs in order to moderate inflation.
Three-month CD rates
Rates on three-month CDs have decreased slightly from a week ago. The national average rate was 1.41% as of April 26, 2023, the latest data available, down a point from the previous week and three basis points from a month prior.
Six-month CD rates
By choosing a top-rated six-month CDs, you benefit from a winning mix of competitive interest rates and a short-term commitment.
The national average APY for six-month CDs is 1.91%, up from 1.88% last week and 1.90% one month ago.
The current top national rate for a six-month CD is 4.88%, according to the data available from Bankrate’s database. Shopping around can help you find better deals.
You’d earn more than $620 in interest if you put $25,000 in a six-month CD with a rate of 4.88%.
One-year CD rates
If you’re up for setting aside your savings for a full year, you’ll be able to pick up even more impressive rates. One-year CDs can give you returns as high as, or even higher than, longer-term options.
Rates on 12-month CDs are inching up. The national average APY is 2.44%, up two basis points from last week and one basis point from a month before.
The current national high for a 12-month CD is 5.25%, which would earn approximately $1,350 in interest with a $25,000 deposit.
Two-year CD rates
Interest rates on CDs with longer terms, such as those spanning two years, have remained stable.
The nationwide average APY stands at 2.52%, the same as a week prior, yet two points lower than a month ago.
Right now, the highest national rate for a 24-month CD is 4.55%. If you invest $25,000 in a 24-month CD at the high rate of 4.55%, you’d earn around $2,380 in interest.
Three-year CD rates
The national average APY for a three-year CD stands at 2.70%, which is down a point from last week and from 2.72% a month ago.
If you invest $25,000 in a 36-month CD at the average rate of 2.70%, you’d earn about $2,110 in interest.
Five-year CD rates
Yields on five-year CDs are moving down this week. The national average APY is 2.80%, a point lower than last week, and two points below last month’s level.
If you were to lock in a rate at the average of 2.80%, you’d earn around $3,700 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.
