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Want 4% on Your Savings? 5 Key Numbers to Know About CDs
The best CD rates are stellar right now. But consider CD terms, penalties and minimums too.
Spencer Tierney is a consumer banking writer at NerdWallet. He has covered personal finance since 2013, with a focus on certificates of deposit and other banking-related topics. His work has been featured by The Washington Post, USA Today, The Associated Press and the Los Angeles Times, among others. He is based in Berkeley, California.
Sara Clarke is a Banking editor at NerdWallet. She has been an editor and project manager in newsrooms for two decades, most recently at U.S. News & World Report. She managed projects such as the U.S. News education rankings and the Best States rankings. Sara has appeared on SiriusXM Business Radio and iHeartMedia’s WHO Newsradio and has been quoted in The Salt Lake Tribune, The St. Paul (Minnesota) Pioneer Press and other outlets. She is based near Washington, D.C.
Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.
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Certificates of deposit are in the financial spotlight this year. The best CD rates are higher than 4% annual percentage yield even for one-year terms, which is worlds better than they were years and even months ago.
“If there has been any silver lining to the market turmoil investors have experienced over the past months, savers are experiencing it through opportunities to invest in safe instruments like CDs at improved rates,” Elisabeth Mesquit, certified financial planner and owner of the firm Soaring Investment Management in Portland, Oregon, said in an email.
Safety is what CDs are typically known for, and higher rates may sweeten the deal so that more people consider these bank accounts. Here’s a closer look at what they are.
Defining CDs: The 'time deposit' account
A certificate of deposit isn’t your everyday savings account. A CD is also known as a time deposit, and it’s clear why: Opening a CD requires you to choose a specific length of time for a bank to hold an upfront amount of money. In return, you tend to earn more interest than other bank accounts do while having the same protections, including federal deposit insurance
You can open a CD at a bank or credit union, the not-for-profit equivalent. Credit unions often call CDs "share certificates." Investment firms also have CDs available to buy and sell, known as brokered CDs, but we’ll focus on regular CDs here, including the five numbers to look at.
1. Interest rate
The interest rate determines how much money you earn on the funds in a CD. Unlike regular savings, most CDs have fixed rates. As a result, the return is predictable and guaranteed, as long as you don’t withdraw early. (More on that later.)
Online banks and online credit unions tend to have the highest CD rates, and some one-year rates are over 4%. Compare that with the national average of 0.83% APY for five-year CDs, according to the Federal Deposit Insurance Corp
The Federal Reserve’s actions helped spur this current rising rate environment. When the Fed raises its benchmark rate, as it has multiple times in 2022 to curb inflation, banks take their cue to raise rates.
A savings account is a place where you can store money securely while earning interest.
A savings account is a place where you can store money securely while earning interest.
4.50%SoFi members with direct deposit activity can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum direct deposit amount required to qualify for the 4.50% APY for savings. SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that are equal to or greater than $5,000 every 30 days. Members without either Direct Deposit or Qualifying Deposits will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 8/2/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
These cash accounts combine services and features similar to checking, savings and/or investment accounts in one product. Cash management accounts are typically offered by non-bank financial institutions.
These cash accounts combine services and features similar to checking, savings and/or investment accounts in one product. Cash management accounts are typically offered by non-bank financial institutions.
5.50%*Base annual percentage yield (variable) is 4.75% as of 7/31/23. 5.50% APY reflects a .75% boost available as a special offer with qualifying deposit. Terms apply. Cash Reserve is only available to clients of Betterment LLC, which is not a bank, and cash transfers to program banks are conducted through clients’ brokerage accounts at Betterment Securities.
0.50%SoFi members with direct deposit activity can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum direct deposit amount required to qualify for the 4.50% APY for savings. SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that are equal to or greater than $5,000 every 30 days. Members without either Direct Deposit or Qualifying Deposits will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 8/2/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
A CD’s term is the length of time the account is opened for. The most common range is three months to five years, though you can find CD terms as short as one month and as long as 10 years.
In general, the longer the CD term, the higher the CD rate. You get rewarded for leaving your money untouched longer, but there’s also a downside. Longer-term CDs can have steeper penalties for withdrawing early.
3. Early withdrawal penalty
The early withdrawal penalty is typically a CD’s one fee, and it’s charged only if you cash out before the term ends. A penalty tends to be the amount of interest a CD earned over days or months, such as three months of interest, a year of interest or more, depending on the term. Be aware that an early withdrawal also means losing out on any remaining interest you had yet to earn. And it’s fairly common for a bank to not allow partial withdrawals, making it an all-or-nothing transaction.
The one exception to penalties is the aptly named no-penalty CD, which offers a free withdrawal at any time after the first few days. But no-penalty CDs have some limits, such as fewer CD terms and lower rates than some CDs have.
The minimum amount you can open a CD with depends on the bank. A NerdWallet analysis of 30 financial institutions with competitive CD yields found that the typical minimum tends to be $1,000, though you can find CDs with no minimums and others with $100,000 minimums (often called jumbo CDs). The opening deposit is usually your one chance to add money to a CD, so make it count.
A savings account is a place where you can store money securely while earning interest.
A savings account is a place where you can store money securely while earning interest.
4.50%SoFi members with direct deposit activity can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum direct deposit amount required to qualify for the 4.50% APY for savings. SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that are equal to or greater than $5,000 every 30 days. Members without either Direct Deposit or Qualifying Deposits will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 8/2/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
These cash accounts combine services and features similar to checking, savings and/or investment accounts in one product. Cash management accounts are typically offered by non-bank financial institutions.
These cash accounts combine services and features similar to checking, savings and/or investment accounts in one product. Cash management accounts are typically offered by non-bank financial institutions.
5.50%*Base annual percentage yield (variable) is 4.75% as of 7/31/23. 5.50% APY reflects a .75% boost available as a special offer with qualifying deposit. Terms apply. Cash Reserve is only available to clients of Betterment LLC, which is not a bank, and cash transfers to program banks are conducted through clients’ brokerage accounts at Betterment Securities.
0.50%SoFi members with direct deposit activity can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum direct deposit amount required to qualify for the 4.50% APY for savings. SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that are equal to or greater than $5,000 every 30 days. Members without either Direct Deposit or Qualifying Deposits will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 8/2/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
The maturity date is the calendar day that a CD ends. You’ll want to remember this date because once it arrives, CDs tend to have a limited window of seven to 10 days for you to withdraw for free. If you don’t do anything, a bank can automatically renew the CD for the same term that you chose originally. So if it was a five-year CD, you’d have to wait another five years to withdraw penalty-free.
In weighing all CD factors, lead with the rate and whether a CD helps your savings goals.
As Mesquit put it, CDs’ “attractiveness as an investment or savings vehicle depends on what the rates are compared to inflation and your other options.”
