Best 4-Year CD Rates for June 2023

Certificates of deposit are a special type of bank account that involve advance commitments from both the individual and the bank or credit union. The individual's commitment is to hold a lump-sum deposit in the account for a predetermined period of time, usually measured in months or years. In turn, the financial institution commits to paying the individual a fixed and known interest rate for the full duration of the CD.

Because the bank can count on having access to the funds for an extended period, they will generally pay the individual a higher interest rate on their balance than if the funds were put into a savings or money market account, where unpredictable withdrawals and deposits are allowed.

A four-year CD is simply a certificate of deposit that has a maturity term of about four years or 48 months, though you'll sometimes encounter CDs with odd terms, such as 45 months or 49 months. Those that qualify for our four-year rankings have terms ranging from 42 to 53 months.

There are two main reasons to consider a CD that is four years in length. The first is based on your personal timeline. If you know you can lock up the funds for a number of years, but five years is a bit too long because you'll need the funds sooner than that, a four-year term can get you close to those five-year yields while shortening the time until you can access the funds.

The second reason to buy a four-year CD is if you are building a five-year CD ladder. This is explained in more depth below, but in short, it involves buying an array of different CD terms, in yearly durations of up to five years. Hence, you'll need one four-year CD to complete the group.

The term CD ladder refers to a strategy designed to maximize the amount of interest you can earn on funds committed to CDs over a long period of time, while still retaining access to a portion of the funds every year. The way it works is by investing one-fifth of the total funds into five different CD durations (e.g., the rungs of the ladder) and eventually rolling each maturing CD into a five-year CD because those certificates earn the highest rates.

Let's say you want to keep $50,000 invested in safe, reliable CDs for capital preservation. Instead of investing it all in a single five-year CD and having no access to the full amount for that time, you can build a five-year CD ladder by putting $10,000 into a one-year CD, $10,000 into a two-year CD, and so forth, until you have five $10,000 CDs all maturing a year apart.

Each year, when one of the CDs matures, those funds get rolled into a new five-year CD to earn a higher yield and continue the ladder. After the fourth maturity, you'll still have five certificates, but they will now comprise a portfolio of only top-paying five-year CDs with one available for withdrawal every year.

At almost every bank or credit union, you can withdraw your money from a CD at just about any time. A process will be involved that might mean it takes a few days or a week before you have a check in hand or a completed transfer to another bank account. But you can always get access to the funds if you really need them. It just won't be for free.

Because the entire premise of a CD is that the bank is paying you a better interest rate in exchange for your agreement that you'll keep the funds on deposit until maturity, breaking the CD early means you will receive a penalty for violating your end of the bargain. This is called an early-withdrawal penalty, and like rates, the penalties vary tremendously across institutions.

Each bank or credit union will have a specific policy in place on how the early-withdrawal penalty is calculated. The most typical form is that when cashing out early, you forfeit some months of earned interest. This can be as few as one month or as long as 12 months or more, if not all of the interest you earned total. Even worse are early-withdrawal policies that calculate the penalty as a percentage of the balance because these can go beyond withholding interest and instead dip into your principal.

For that reason, it's worth finding out what an institution's early-withdrawal policy is for any CD you're considering. And if you're trying to decide between two fairly similar CDs, it's wise to go with the one assessing a milder penalty just in case an emergency arises and you find yourself needing to withdraw.

You can open a certificate of deposit at almost any bank or credit union. And for the most part, there is little difference between CDs from these different institution types. Indeed, both banks and credit unions offer the same level of deposit insurance ($250,000 per individual) should the institution fail.

The biggest difference is that opening any account at a credit union requires you to first become a member of that credit union because credit unions are member-owned nonprofit organizations. Further, you'll find that the rules of eligibility for membership are unique to each credit union, with some based on where you live, while others are based on where you work.

All of the credit union CDs in our rankings are from credit unions that allow anyone nationwide to join regardless of where you live or work. However, doing so sometimes requires a little more legwork than becoming a bank customer, and it sometimes requires a small donation or fee.

Still, it can be worth the extra step because many credit unions make up the top ranks for various CD maturities. In particular, the longer the term you're shopping for, the better served you'll be by staying open-minded to a credit union CD.