Popular Direct and America First Credit Union currently offer the highest CD rate for a 3-year CD, at 4.15% APY. The best 3-year CD rates far outpace the average CD rate for three-year terms of 1.33% APY (Annual Percentage Yield). You'll be able to find these strong rates at online banks and credit unions.
From mid-2023 to September 2024, many banks offered attractive certificate of deposit (CD) rates of around 5%. But now that the Federal Reserve has been cutting rates, CD yields are dropping too. Despite lower rates, CDs remain a solid option for growing your savings.
As Beene notes, "The recent rate cuts by the Fed have already produced small drops in the rates of CD and savings accounts at many major banks, and we're going to see that continue if interest rates drop. If you want to lock in a certain rate a CD currently provides, it would be a good idea not to wait."
That said, here's how much you could expect to make by depositing $20,000 into a one-year CD now, broken down by four readily available interest rates (interest compounding annually): At 6.00%: $1,200 (for a total of $21,200 after one year) At 5.75%: $1,150 (for a total of $21,150 after one year)
One major drawback of a CD is that account holders can't easily access their money if an unanticipated need arises. They typically have to pay a penalty for early withdrawals, which can eat up interest and can even result in the loss of principal.
How much interest would you earn? If you put $20,000 into a 5-year CD with an interest rate of 4.60%, you'd end the 5-year CD term with $5,043.12 in interest, for a total balance of $25,043.12.
The national average 1-year CD APY started 2024 at 1.96% and ended the year at the same level. Similarly, the average APY for 5-year CDs started at 1.41% and ended at 1.42%. McBride predicts that by the end of 2025, the national average APYs for 1-year and 5-year CDs will be 1.25% and 1.35%, respectively.
Losing money in a CD is highly unlikely. However, it's not impossible. If you're thinking about opening one, read the fine print about early withdrawal penalties, and be sure to compare more flexible options that don't have a maturity date. And even if you decide to open a CD, don't set it and forget it.
When you open a CD, you lock in the interest rate for the entire term. If you open a CD when rates are low and rates then rise in a big way, it may be worth breaking your CD to secure a higher rate. For example, let's say that breaking your current CD will result in a $25 early withdrawal fee.
While there aren't any financial institutions paying 7% on a CD right now, there are other banks and credit unions that pay high CD rates. Compare today's top CD and savings rates.
Is CD interest taxable? All types of income you earn in a taxable year must be reported to the IRS. That includes the interest on your CDs. As you earn interest on your CD even before it is fully matured, it is still considered taxable income and subject to the annual federal income tax.
There are two high-yield checking accounts with interest of at least 7%, though: BCU PowerPlus Checking and Landmark Credit Union Premium Checking Account. Both come with major downsides, though. Are 7% interest savings accounts safe?
CDs are considered to be low-return investments but the return is guaranteed at the specific interest rate even if market rates go lower.
Cons of CDs Explained
Lower returns than other investments: CDs offer limited returns if you want to build wealth. You can often get better returns for your money by putting it into the market and buying stocks, mutual funds, or other investments instead—as long as the market is on an upswing.
Deposits at FDIC-insured banks are covered up to $250,000 per person per account ownership type. For example, a $250,000 certificate of deposit in a single-owner account would be fully insured in the event of a bank failure or liquidation.
Should I open a CD now or wait? It might be a good idea to get a CD now, since rates are expected to drop in the future. "If they want to get in the market for a CD, now might be the better time to lock in that higher yield, so they're shielded — at least for the near term — as rates continue to drop," says Stroup.
Yes, you can get 6% on a CD now. As of January 10, 2025, the Financial Partners Credit Union is offering 6.00% APY on their CD rates for 8 months. The minimum deposit is $1,000.00, up to a $5,000 maximum. Check out the latest CD rates from over 400 banks and credit unions.
Dave Ramsey, on the other hand, views CDs as too conservative. He often describes them as “glorified savings accounts” with returns that struggle to keep pace with inflation. He argues that CDs might offer slightly higher interest rates than savings accounts, but they fall short as long-term investment vehicles.
A cushion can also help you to avoid steep overdraft fees. And if you have an interest checking account, you can earn a little interest on your balance as well. Is $20,000 a Good Amount of Savings? Having $20,000 in a savings account is a good starting point if you want to create a sizable emergency fund.
How much will you earn if you put $20,000 into a 1-year CD? You can currently get a rate of up to 5.67% on a 1-year certificate of deposit. If you were to put $20,000 into that account, you would earn $1,134 in interest in a year, for a total of $21,134.