| Product | AVG | Top 1% |
|---|---|---|
| 6 Month CD | 3.25% | 5.38% |
| 1 Year CD | 3.29% | 5.31% |
| 2 Year CD | 2.29% | 5.05% |
In the past, the longer the term of a CD, the higher the yield. That was traditionally the exchange for a bank borrowing your money for a prolonged period of time. As the economic environment has changed, shorter-term CDs are offering very attractive yields nowadays. For example, the best 6-month CD has a yield of 6.00% with the national average at 2.62% based on our research. With rates at a recent high, you can lock up your money for a relatively short period and still reap the benefits of a competitive APY.
A CD is a type of deposit account, and when you open a 6-month CD account, you agree to lend the bank or credit union your hard-earned money for six months, which is not a very long time, and the bank agrees to pay you a fixed rate for the duration of the term. One of the important points to keep in mind is that withdrawing your funds before the CD matures will cause an early withdrawal penalty to be assessed by the bank that can be a significant portion of the interest earned, if not all of it.
At present, the average yield being offered for a 6-month CD is at 2.62%. This is much higher than the average yield for a conventional savings account, which is currently at 0.46%. This is the exchange that a customer and a bank agree to, and why a bank is willing to offer a higher yield for borrowing your money for six months. At the end of the term, the CD will generally auto-renew for the same term length, but the rate may not be the same. It is important to be aware of when your term ends, as banks will only allow a short window of 5-7 days to cancel your CD without potentially incurring early withdrawal penalties.
The interest rate on a CD is determined by the amount invested, the term of the CD, and the APY. There are plenty of CD calculators available online to get a good idea of how much interest you will earn based on the amount, term, and compounding frequency.
If you put $2,000 in a CD with a 3.50% APY compounding annually, you will earn $70 in interest over the course of the first year. This is an easy calculation since you simply multiply the APY by the amount of your initial investment. When looking at CDs with periods longer than one year or CDs with a different compounding frequency, it's crucial to remember that the total interest earned will be different.
CDs are an excellent option for someone who has extra money laying around or wants to have their money work a bit harder and can lock it up for six months in a CD. When searching for the best 6-month CD, keep in mind that you should not access your funds for the entire six months, or an early withdrawal penalty will be assessed, and you may lose part or all of your interest, depending on the bank's terms. Here are some important things to keep in mind when evaluating CDs:
Shop around: Comparing CD rates at various banks is an easy way to find the best CD for your needs. Keep in mind that you don't always have to have all of your CD accounts with the same bank, as many online banks offer higher rates than traditional banks. Thankfully, we've done all of the hard work and gathered information from thousand of banks all across the country. Take a look at our site and see which CD might be best for you.
Do not incur early withdrawal penalties: Leaving your money in your CD for the full length of the term allows you to earn the maximum interest. Withdrawing your money early will most likely cause you to lose part or all of your interest, as banks typically charge penalties.
| As long as you are within the FDIC or NCUA limits, your money is safe and secure for the entire 6 months. | If rates should happen to rise, your rate is locked in at a lower rate, causing you to lose out on additional interest. |
| The rates currently being offered on 6-month CDs are at a recent high, which will allow your money to work harder. | If you withdraw your money before the six months are up, you will most likely incur an early withdrawal penalty, which may cause you to lose some or all of your interest earned. |
| Your rate is locked in for six months. If rates go down, your rate will not change and you earn more interest. |
Personal Savings Accounts
A savings account is a type of interest-bearing, depositary account available at banks and credit unions. Banks typically pay a variable interest on deposits but may limit the number of withdrawals per month. Unlike a 6-month CD, which ties up your money, a personal savings account is highly liquid but offers low yields.
Checking Accounts
A checking account is a form of transactional account that can be opened at a bank, traditional or online, or a credit union. Checking accounts allows you to deposit funds and then withdraw from them to pay bills or make purchases. Keep in mind that the money in your checking account is money that you intend to use in the short term to meet your daily expenses. Unlike a 6-month CD, a checking account offers a low yield, with some banks offering no yields at all.
Longer Term CDs
Longer term CDs such as a 9-month, 1-year, and 15-month CDs currently offer slightly higher yields but require you to commit your funds for longer periods of time. If you prefer the security of a fixed rate for a longer term, these CDs may be an excellent alternative to a 6-month CD.
High-yield Savings Accounts
A high-yield savings account is a form of savings account that pays a much greater interest rate than other types of savings accounts. Rates of 3.63% and higher are now available from online banks. This is the one type of account that offers yields similar or higher than a 6-month CD, with the drawback being that yields are variable and can fluctuate.
Money Market Accounts
A money market account (MMA) is a type of interest-bearing savings account that also allows you to use a debit card and write checks. MMAs generally limit the number of purchases and transfers to six per month, although ATM withdrawals are typically unrestricted. In general, MMAs offer lower, variable yields than a 6-month CD.
Annual Percentage Yield (APY): The total interest you receive on your 6-month CD account over the course of a year is expressed as an APY. The interest rate on an account is only one component of the APY, which also considers how frequently your interest compounds. The APY of your 6-month CD provides a more precise estimate of how much money your account will earn on an annualized basis.
Minimum Opening Deposit: This is the lowest amount of money you must deposit to open your 6-month CD account.
Interest: Interest is the money you earn from depositing your cash with a bank into your 6-month CD. When you deposit money with a bank, the bank borrows it from you and will lend a portion of it to clients or other banks, and the money they pay on your 6-month CD, is the interest.
Compound Interest: Compound interest is the interest you earn on interest you have already been paid. This may be demonstrated using simple math: if you have $100 and it generates 5% interest every year, you will have $105 at the end of the first year. You'll have $110.25 by the end of the second year, because you earned interest on the $105, and so on and so forth.
Early Withdrawal Penalty: An early withdrawal penalty is a fee banks may charge if you withdraw funds before the 6-month CD matures. Withdrawing your funds before the end of the term may cause you to forfeit a portion of your accrued interest and possibly some of your principal.
A nine-month CD locks up your money for a somewhat extended term but also offers a higher and more attractive APY, especially when compared to a conventional savings account. The best 9-month CD account currently available is offering a yield of 5.75% with the average rate at 2.56%. Here are some of the best 9-Month CDs we've analyzed being offered by banks and credit unions for July 2024:
A one-year CD requires you to set your money aside for a longer period of time, which makes them a convenient place to park money that isn't immediately needed and can possibly earn a higher APY. The average yield we've identified from researching hundreds of banks is 2.68% with the top rate at 5.92%. Take a look at some of the best one-year CDs offered by banks and credit unions for July 2024.
Although locking up your money for three years may seem like a long time, with rates at recent highs, this can be ideal for people who don't like to take on too much risk and like to sleep well knowing their money is working hard. The current average rate for 3-year CDs is at 1.83% with the best 3-year CD yielding 5.92%. We've analyzed banks and credit unions nationwide to find the best 3-year CDs currently being offered for July 2024:
Our editorial staff continually updates the information contained on our website. Our editorial staff has analyzed virtually all of the banks and credit unions that it follows, and it does weekly rate analysis for more than 250 prominent banks and credit unions. These institutions were chosen because they provide competitive APYs, low fees, and other factors we find important. These banks and credit unions often provide accounts that are available nationally. All of these banks are FDIC-insured, and all of these credit unions are NCUA-insured. Choosing an FDIC-insured bank or an NCUA-backed credit union assures that your money is protected as long as it stays within insurance limits and requirements.