Best 5-Year CD Rates

Opening a certificate of deposit involves making an agreement with a financial institution that you will deposit a certain amount of money with them, in an account that will sit essentially untouched, in exchange for earning a premium on the rate of return. You'll also be guaranteed that interest rate for the life of the certificate.

Five-year certificates are a useful savings vehicle in a number of situations. For instance, if it's expected that national interest rates will decrease over the coming few years (i.e., a declining rate environment), it would be beneficial to lock in one of today's more favorable rates for the coming five years.

Socking money away in a 5-year CD can also be a helpful strategy for those saving up for a large financial goal. Perhaps it's money for a down payment on a house. Or maybe you have money saved for your child's college education and you'll need it for tuition in five to six years. By putting it in a CD, you can ensure it earns interest and doesn't lose principal, while also putting a mechanism in place to discourage you from dipping into the funds for other purposes.

Still another reason to open a 5-year certificate is to capitalize on the highest rate you can earn. Since institutions often pay their highest APY on 5-year CDs, stretching for the longer term enables you to maximize your return. Five-year certificates are also a critical component of a CD laddering strategy, which we'll discuss below.

Keeping your certificate funds on deposit until maturity is the best way to maximize your earnings. But sometimes life gets in the way, with unexpected financial needs arising. For this reason, every bank or credit union offering CDs has a written policy on the penalty they will apply should you cash the CD out early.

Most typically, the penalty is a forfeiture of some number of months of interest. For example, the early withdrawal penalty on a 5-year CD might be 12 months of interest. That means an amount equal to what the CD would have earned in a year would be deducted from your balance before liquidating the proceeds.

Early withdrawal penalties are set individually by each bank or credit union, and they run a wide gamut from mild to exceptionally onerous. But even if you don't expect to need an early cash-out, it's smart to determine the early withdrawal penalty in advance of committing to any CD you're considering.

A CD ladder is a strategy that enables savers to earn 5-year rates while keeping a portion of their CD funds accessible every year. Here's how it works:

1. Determine how much money you want to invest in CDs.
2. Divide that amount by five.
3. Open a top-paying 1-year CD with one-fifth of the funds, a top 2-year CD with one-fifth, and so forth through a 5-year CD. This will result in five CDs with terms ranging from one to five years.
4. After 12 months, the 1-year CD will mature. Withdraw the funds and invest them in a new top-paying 5-year CD.
5. Every 12 months, withdraw funds from the maturing CD and reinvest it in a top-paying 5-year CD.
6. After four years, you'll have a portfolio of five 5-year CDs, earning top long-term rates. But one of them will mature every 12 months, giving you periodic access to a portion of your funds.

Certificates of deposit are available from brick-and-mortar banks, online-only banks, Internet banking divisions of traditional banks, and credit unions. For the most part, there is little difference between CDs from these different types of institutions.

The biggest difference is that opening a CD with a credit union requires you to be a member of that credit union. The credit union certificates we include in our rankings all allow a method for anyone nationwide to join. However, doing so sometimes requires a little more legwork than becoming a bank customer, it and often requires a donation or fee.

As for CDs from different bank types, they differ very little. The methods available for opening a CD account may include an in-branch visit for physical banks that operate in your area, while Internet banks will only allow account opening online. But aside from the physical presence of a bank (or lack thereof), CDs from different banks will function generally the same way.

These different institution types can pay very different rates. Credit unions are nonprofit organizations and sometimes offer their members better rates than banks do. As a result, you'll see credit unions in many of our rankings of top CDs by term, with them ranking prominently for longer terms like 5-year certificates.

Online banks also tend to pay a higher APY than traditional banks, as their no-presence business model costs less to maintain than brick-and-mortar institutions. These overhead cost savings are often then passed to consumers via better interest rates.

For money you plan to hold as long as five years, a conservative investment in the stock market is an alternative option. However, preserving your principal is not guaranteed in the market. So if keeping your savings reliably intact, with a safe, predictable earnings flow, is important to you, a CD will serve you better than an equity or bond investment.

Though banks and credit unions usually pay higher rates on 5-year CDs than on shorter terms, this isn't always the case. So it can be smart to consider a shorter CD if it allows you to earn a higher APY. This is especially true if national interest rates are expected to rise in the coming years.

Lastly, high-yield savings accounts are proliferating online, enabling savers to earn higher rates than what traditional savings accounts pay. The advantage of choosing a high-yield savings account over a CD is that the savings account will allow you to withdraw your funds at any time you choose. So even if the interest rate is slightly lower than the CD you're considering, you may find the accessibility trade-off to be worth it.

If you aren't looking to lock your money up for a period of time and want easier access to it, you could look at opening a high-yield savings account as an alternative. Below are some savings account options from our partners which can be competitive with the rates you can earn on CDs. It should be noted that unlike a CD, where your rate is locked in, with a savings account the bank or credit union can change your rate at any time.