Savers willing to temporarily stash their cash can reap solid rewards in this topsy-turvy savings environment where one-year CDs are often yielding as much as, or more than, longer-term offerings. To determine the best one-year CD products, we evaluated more than 140 certificates of deposit (CDs) and the financial institutions offering them, looking at interest rates, customer ratings and more, to determine the best one-year CDs.
Best 1-year CD rates
Compare the best CDs
National average interest rate for CDs
Several factors influence CD rates, including the federal fund rate set by the U.S. Federal Reserve, and the type and the length of the CD.
“Generally longer-term CDs have higher rates to compensate investors for tying their funds up longer,” said Seth Mullikin, a CFP at Lattice Financial in Charlotte.
As of January, 2023, the average national deposit rates are as follows according to the Federal Deposit Insurance Corporation (FDIC).
Are CD rates going up?
Yes. In 2022, after more than a decade of low rates, the Federal Reserve increased the federal fund rate seven times in an effort to stamp down national inflation. When the Federal Reserve changes the federal funds rate, CD rates typically follow.
Financial institutions use the federal funds rate to help determine how much to charge in interest for lending products and how much to offer in interest on deposit accounts such as savings accounts and CDs. As rates spike, consumers face higher costs of borrowing, but, on the flip side, see a boost in their interest earnings.
The following table outlines how large these recent rate increases were.
How to use a one-year CD?
CDs are a great way to safely earn interest on money you aren’t currently using.
“CDs can be a good place to invest cash for individuals who are saving for short-term goals,” said Desiree Kaul of Main Street Planning in Satellite Beach, Fla. If you’re saving up for a car or a vacation, a CD may be an ideal option.
CDs tend to earn higher interest rates than savings accounts, but these increased earnings come with a tradeoff. When you put your money in a CD, you lose flexibility. You have to keep the cash in the CD for a set period of time and can’t remove it until it matures, otherwise you’ll likely pay an early withdrawal penalty.
A CD isn’t a great option for storing the cash you need accessible, so keep your checking account open. But you can own multiple CDs with different maturities to both give yourself access to cash, and the ability to save in longer term fare should rates rise.
How are CDs taxed?
The money you earn on a CD counts as taxable income in most situations.
“CDs are taxed at both the state and federal levels,” said Mullikin.
If you earn more than $10 in CD interest, you should receive a tax document from your CD provider, either Form 1099-INT or Form 1099-OID. Whether you receive the forms or not, you are still responsible for reporting all taxable income, otherwise you risk paying backup withholding and a penalty.
However, if your CDs are part of your individual retirement account (IRA), then your taxes will be different. “You can have a CD in an IRA, traditional or Roth—then the rules are based on IRA taxes,” said Nicholas Bunio, CFP in Downingtown, Pa.
Why some banks didn’t make the cut
We used the same report card to judge each CD and not every bank had one of the best one-year CDs. You’ll notice that many of the largest banks in the country didn’t make the cut.
This is primarily because larger banks don’t need to attract customers by offering great rates. They already have household names that Americans have known for generations, whereas smaller institutions offer competitive CD rates to make a splash and attract customers.
Those that did make our list graduated from our methodology rating with flying colors.
Methodology
We looked at over 140 CDs offered by 84 financial institutions and evaluated them to create a star rating for each. An institution with a perfect score of 100 would get five stars. One with a score of 80 would get four stars and so on. Here are the categories we analyzed and how we weighted each.
- APY: 75%
- Customer experience: 5%
- Minimum deposit: 5%
- Compound interest schedule: 5%
- Digital experience: 5%
- Available terms: 3%
- Availability: 2%
We believe that potential earnings reign supreme, so a CD’s APY was the most heavily-weighed factor in our calculations. Non-APY factors still played a part, with customer experience being an important factor. To round out the score, we analyzed CD accounts further, valuing those with lower minimum deposits, daily compound interest schedules (rather than monthly) and those that are nationally available (think credit unions with an open versus limited membership).
We monitor over 80 financial institutions, including Capital One, PenFed, Discover, Chase, TD Bank, Marcus by Goldman Sachs, TIAA Bank, Colorado Federal Savings Bank and American Express Bank.
Frequently asked questions (FAQ)
CD rates fluctuate, and therefore there is no one best rate. For much of the past 15 years, CD rates were low by historical standards because the Federal Reserve kept interest rates low to stimulate the economy. Now that inflation is an issue, the Fed has raised rates and now CD rates are higher. The best options, though, aren’t typically offered by the biggest banks, and therefore you should shop around before making a selection.
No one knows what CD APYs will look like in six months for sure. But, choosing a six-month CD gives you more flexibility. When it matures in half a year, you can move your funds into another CD with a higher rate, if rates have gone up, or you could invest it in a completely different way.
