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, especially on the high end, have ticked up slightly over the past week as banks continue to live in the high-interest rate world brought on by the Federal Reserve’s effort over the past year to stymie inflation.
Three-month CD rates
Rates on three-month CDs have increased by one basis point to 0.98% APY (as of July 21, 2023). The average APY is up nine 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
When you opt for leading six-month CDs, you get a winning combination: solid interest rates and a commitment that’s only short-term.
The national average APY for six-month CDs is 1.40%, up slightly from 1.38% last week and 1.32% one month ago.
The current top national rate for a 6-month CD is 5.41%, according to the data available from Curinos’ database. But you may be able to find better deals by shopping around.
You’d earn almost $670 in interest if you put $25,000 in a six-month CD with a rate of 5.41%.
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 increasing. The national average APY is 1.66%, up two basis points from last week and eight basis points from a month before.
The current national high for a 12-month CD is 5.60%, which would earn around $1,400 in interest with a $25,000 deposit.
Two-year CD rates
Yields on longer-term CDs, such as two-year terms, are also on the rise.
The national average APY is 1.55%, up one basis point from last week and up three basis points from one month ago.
The current national high for a 24-month CD is 5.15% 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 5.15% you’d earn roughly $2,650 in interest.
Three-year CD rates
The national average APY for a three-year CD stands at 1.49%, which is flat to where it stood last week and up from 1.47% a month ago.
The highest rate was 5.20%, which would net almost $4,105 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)
You’ll need a few key details to open a CD: your name, address, Social Security number, government-issued ID and phone number. You can open a CD online or in person, but you’ll probably find better rates online. Once you get the green light, you can fund the CD with cash from a linked bank account or one that’s not affiliated with the bank at all.
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.
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.
