If you're looking to invest your money in a certificate of deposit (CD), you may be wondering what the best term is to buy right now. Well, that depends.
While the highest interest rate on a CD of any term is 5.35% APY today, that may not be the best CD for your financial situation. Historically, CDs have paid progressively higher interest rates the longer someone was willing to lock up their money. However, that is not the case these days as some relatively short-term CDs pay even higher rates than longer-term options—such as the top-paying 6-month, 1-year, and 18-month CDs which offer an annual percentage yield (APY) of 5.25%.
- Interest rates on CDs vary according to the length of time funds are deposited but the highest rates aren't for the longest terms right now.
- The highest APY for any CD term is 5.35, which is for a 2-year CD.
- If you deposited $2,500 in a 2-year CD today you could earn about $275 in interest when it matures in April 2025.
- Choosing the optimal term for a CD depends on your time horizon and the amount of investable funds.
The Best CD Term to Get Now
One silver lining to the Federal Reserve raising interest rates to combat inflation is that it favors those who are able to save because rates on many deposit products have been moving steadily upward since last summer. CDs in particular have become a very popular option for savers and investors who don't need access to their money right away because of their attractive rates of return.
Currently, the best 2-year CD offers the highest rate available in the U.S., at 5.35% APY. The top CD rates for both shorter and longer terms are lower. If you can afford to tie up some funds until April of 2025, 5.35% represents the best risk-free deposit return in the U.S. market up to the FDIC-insured limits of $250,000 per deposit account. If you deposited $2,500 in the highest-paying 2-year CD available, you could earn about $275 in interest by the time it matures in April of 2025.
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Since CDs require you to lock up your money for a period of time, the best term to choose is dependent on your individual situation and when you might need to gain access to your money. So, if you can afford to park your savings for six months, one year, or longer, you can take advantage of some very compelling interest rates today that are over 5.00%.
While it is possible to cash out of a CD before its maturity date, doing so will entail an early withdrawal penalty equal to a portion of the interest earned.
If not, the best high-yield savings accounts offer 5.00% APY or higher right now, making them attractive and flexible for immediate liquidity.
CD Investing Strategies
Investing in CDs is fairly straightforward and, unlike investing in stocks or bonds, guarantees a certain risk-free rate of return. Depending on the amount one has to invest and their time horizon, different options are available. Below are some basic strategies for different types of investors.
Choosing a Single Term
For someone wanting to earn the highest rate available for a set period of time, a single-term CD can be a good option if the term involved fits within their horizon for eventually needing access to the funds. Under this scenario, choosing a single 2-year or 3-year CD could make sense in the current high-rate environment.
For those with considerable funds to invest and who wish to establish an array of future CD maturities to gain both short-term flexibility and lock in longer-term rates, a CD laddering strategy may be a solid strategy.
Break up your investable funds into equal deposits across a handful of CDs with different terms and maturities, such as 3 months, 6 months, 1 year, 18 months, and 2 years. When each CD matures, you will move the principal and interest into a new CD of the next longest term. For example, you would move your principal and interest from the 3-month CD into a new 6-month CD once the 3-month CD matures. This allows you to enjoy continuous interest compounding, as well as access to money more frequently when a CD matures.
Rate Collection Methodology Disclosure
Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the CD's minimum initial deposit must not exceed $25,000.
Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.
Federal Deposit Insurance Corporation. "Coverage Limits."
Comptroller of the Currency Administrator of National Banks. "Depository Services Comptroller's Handbook." Page 7.
The Tennessee Credit Union. "How to Build a CD Ladder."