| 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% |
A 1-year Certificate of Deposit, or CD, is a type of savings account that keeps money locked up for a term of one year at a fixed rate. The current rate being offered for the best high yield 1-year CD account is 5.92% with the average rate at 2.68% based on the hundreds of banks we've analyzed. This is much higher than the average savings account rate of 0.46%.
Having a one-year CD means that you are agreeing to give the bank or credit union your money for one year in exchange for them paying you a fixed rate. Most small, mid-sized, and online banks that are competing to attract deposits will generally offer rates that are in line with the Fed Funds rate. As mentioned previously, the best high yield 1-year CD rate for July 2024 is at 5.92%, which is in line with the Fed Funds rate.
For the most part, once you fund your CD, your rate is locked until the end of the term. A few banks offer step-up or bump-up CDs that will allow a one-time adjustment to your rate should rates go higher during the course of the term. At the end of the term, the CD will generally auto-renew at 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.
For example, if you were to deposit $10,000 into the best 1-year CD with a hypothetical APY of 5.00%, your total pre-tax interest earned for the year would be $500.
CDs are a wonderful alternative when you need to find somewhere to park extra cash for long-term goals or money that you want to keep safe for a fixed amount of time, in this case, one year. When searching for the best 1-year CD, keep in mind that you cannot access your funds for one full year. If you do, you will incur a potentially significant early withdrawal penalty. 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 or neobanks offer higher rates than traditional banks.
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.
| The rates currently being offered on 1-year CDs are at a recent high, which will allow your money to grow faster. | If you withdraw your money before the CD matures, you will most likely incur an early withdrawal penalty, which depending on the bank, can be hefty. |
| As long as you are within the FDIC or NCUA limits, your money is safe and secure. | If rates should happen to rise, your rate is locked in at a lower rate, causing you to lose out on additional interest. |
| You get to lock in your rate for one full year. If rates go down, your rate will not change for the duration of the 1-year term. |
If you think you may need your money sooner than the commitment a 1-year requires, it may be beneficial to consider a shorter term CD such as a 9-month, 6-month or 3-month CD that offers comparable yields without the longer commitment.
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.
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.
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.
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 money in 1-year CD 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 annual percentage yield (APY) of an account provides a more precise estimate of how much money your 1-year CD will earn.
Minimum Opening Deposit: This is the lowest amount of money you must deposit to open your 1-year CD account.
Interest: Interest is the money you earn from depositing your cash with a bank into your 1-year 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 1-year 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 your 1-year 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 5-Year CD ties up your money for a longer term, but can be very beneficial as it forces you to save towards your goals and locks in today's current rates, which stand at an average of 1.81%, for the duration of the term. The best 5-year CD is currently yielding a rate of 4.55%, which is higher than it has been in many years. We've looked at banks all across the country to find the best 5-Year CDs being offered by banks and credit unions across the country and have compiled the best CDs for July 2024.
A one-month CD is very liquid as it has a very short term, which makes it a convenient alternative to traditional savings accounts and longer-term CDs. We did our research, and some of the top banks are offering APYs as high as 4.80% with the average APY of 0.60%. We've complied some of the best 1-Month CDs offered by banks and credit unions for July 2024.
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%. We've compiled some of the best 9-Month CDs we've analyzed being offered by banks and credit unions 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.