PHNjcmlwdCB0eXBlPSJ0ZXh0L2phdmFzY3JpcHQiIHNyYz0iaHR0cHM6Ly9zdGF0aWMubXlmaW5hbmNlLmNvbS93aWRnZXQvbXlGaW5hbmNlX3ZpZXdwb3J0X2RldGVjdGlvbi5qcyIgLz48c2NyaXB0IGFzeW5jIHR5cGU9InRleHQvamF2YXNjcmlwdCI+bXlmaVdhdGNoV2lkZ2V0KCdteWZpV2lkZ2V0XzAnKTs8L3NjcmlwdD4=Lauren Williamson is the Financial and Home Services Editor for the Hearst E-Commerce team. She previously served as Senior Editor at Chicago magazine, where she led coverage of real estate and business, and before that reported on regulatory law and financial reform for a magazine geared toward in-house attorneys. You can reach her at lauren.williamson@hearst.com.Hearst Television participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites. This may influence which products we write about and where those products appear on the site, but it does not affect our recommendations or advice, which are grounded in research.Mobile app users, click here for the best viewing experience.For the first time since the mid-2000s, banks are seriously fighting for your business. It’s paying off for consumers in the form of higher interest rates on all types of savings vehicles, but especially on 1-year CDs.This is great news for people who want to lock in a higher interest rate without tying up their money for a lengthy period of time. CDs with longer terms typically have the best interest rates, but that’s not the case right now. The rates on 1-year CDs and even some 10-month and 2-year CDs are significantly higher than those on 5-year CDs.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However, if you’re willing to shop around and especially if you’re willing to consider online banks, you can find rates that are much higher than those averages, even upwards of 5%. Here’s how you can make the most of this excellent moment for saving.Why are interest rates on CDs so high right now?A number of factors have collided in 2023 to create an excellent environment for saving. First, the Federal Reserve’s string of nine consecutive rate hikes has pushed up interest rates on all types of financial services, from loans to mortgages to CDs. (The Fed doesn’t set rates on consumer products, but when it raises the federal funds rate, everything else tends to go up too.) This has been bad news for people who need to borrow money — mortgage rates in October and November hit their highest levels in 20 years — but it’s been great news for savers as banks attempt to close the gap between the federal funds rate and rates on CDs and savings accounts. The target federal funds rate, which is how much it costs banks to borrow from each other, is currently between 4.75% and 5%.Another factor influencing interest rates on CDs: how eager banks are to win your business right now. Deposits at three of the largest banks alone (JP Morgan Chase, Wells Fargo, and Bank of America) dropped $521 billion from this time last year, the most in a decade, according to Bloomberg. The fewer deposits that banks have, the harder it is for them to fund loans, among other things — and interest on loans is where they make most of their money.CDs are a win-win from a bank’s perspective. They pay you a consistent, higher interest rate in exchange for reliable access to your money for a set term. Your money is also safe up to $250,000 per deposit, as long as the bank or credit union is federally insured, by either the FDIC or National Credit Union Administration (NCUA) respectively.Interest rates on high-yield savings accounts are also getting a bump, with a number of options topping 4% and some even flirting with 5%. They’re another good option for savers, especially if you want to have consistent access to your money. How CDs workWhen you deposit money into a CD, you’re essentially signing a contract with your bank: You’ll leave your money in place for a certain period of time, and they’ll pay the same amount of interest for that entire term, regardless of what’s happening in the wider market. Terms typically range from 3 months to 5 years, but as mentioned, 1-year CDs are offering the best rates right now.You put money into CDs as a lump sum, which means you can’t add to it after your initial deposit. Some CDs have minimum deposit requirements, usually around $500 to $1,000. The higher the minimum deposit, the better the interest rate, in most cases. Indeed, average interest rates on 1-year jumbo CDs that require a $75,000 to $100,000 deposit are even better than the ones on traditional CDs right now. But you can still find a great rate of return these days on smaller deposits. It’s not impossible to withdraw your money from a CD once you deposit it, but in most cases you would have to pay an early withdrawal penalty. Early withdrawal penalties usually equal six months to one year worth of interest on the CD, which could potentially erase any gains you made. So before committing to a CD, make sure that you can afford to part with a portion of your money for that long. In most cases, people have a mix of CDs, savings accounts, and checking accounts so they have options that both grow their savings and allow them to easily access it when needed.When your CD reaches the end of its term, known as the maturity date, you’ll typically have seven days to decide what to do with it. Your options will include:Renewing the CD at the current rateRolling the CD into a different CDMoving the CD into a savings accountWithdrawing the moneyIf you don’t do anything, the bank will usually renew the CD for you, but then you don’t get to decide if the current rate is the best option for you. In general, when a CD matures, it’s a great time to reevaluate your savings strategy and make sure that you’re getting the best possible rates.How CDs differ from savings accountsCDs function like savings accounts in many ways, but there are a few key differences. Just like a savings account, CDs are a deposit account — that is, a place to store your money. Unlike investment accounts that go up and down with the stock market, both savings accounts and CDs are relatively risk-free as long as they’re federally insured.While savings accounts allow you to withdraw or transfer money when you need it (with the caveat that some banks limit you to six or fewer withdrawals a month), you must leave your money in a CD for the entire length of the term. In exchange, the bank promises to honor the same interest rate for the entire life of the CD. Interest rates on savings accounts, on the other hand, are variable, and may rise and fall depending on what’s happening in the market.The bottom lineSome analysts believe CD rates have peaked for this cycle, as the Fed is likely to hike the federal funds rate just one more time. That means right now is an excellent time to take advantage of the best CD rates in recent memory. Consider all your options to make sure your money is growing for you as much as possible — because the great thing about CDs is that no matter what happens next, if you lock in a great rate today, it’ll still be working hard for you tomorrow.Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at lauren.williamson@hearst.com.
Lauren Williamson is the Financial and Home Services Editor for the Hearst E-Commerce team. She previously served as Senior Editor at Chicago magazine, where she led coverage of real estate and business, and before that reported on regulatory law and financial reform for a magazine geared toward in-house attorneys. You can reach her at lauren.williamson@hearst.com.
Hearst Television participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites. This may influence which products we write about and where those products appear on the site, but it does not affect our recommendations or advice, which are grounded in research.
Mobile app users, click here for the best viewing experience.
For the first time since the mid-2000s, banks are seriously fighting for your business. It’s paying off for consumers in the form of higher interest rates on all types of savings vehicles, but especially on 1-year CDs.
This is great news for people who want to lock in a higher interest rate without tying up their money for a lengthy period of time. CDs with longer terms typically have the best interest rates, but that’s not the case right now. The rates on 1-year CDs and even some 10-month and 2-year CDs are significantly higher than those on 5-year CDs.
However, if you’re willing to shop around and especially if you’re willing to consider online banks, you can find rates that are much higher than those averages, even upwards of 5%. Here’s how you can make the most of this excellent moment for saving.
A number of factors have collided in 2023 to create an excellent environment for saving. First, the Federal Reserve’s string of nine consecutive rate hikes has pushed up interest rates on all types of financial services, from loans to mortgages to CDs. (The Fed doesn’t set rates on consumer products, but when it raises the federal funds rate, everything else tends to go up too.)
This has been bad news for people who need to borrow money — mortgage rates in October and November hit their highest levels in 20 years — but it’s been great news for savers as banks attempt to close the gap between the federal funds rate and rates on CDs and savings accounts. The target federal funds rate, which is how much it costs banks to borrow from each other, is currently between 4.75% and 5%.
Another factor influencing interest rates on CDs: how eager banks are to win your business right now. Deposits at three of the largest banks alone (JP Morgan Chase, Wells Fargo, and Bank of America) dropped $521 billion from this time last year, the most in a decade, according to Bloomberg. The fewer deposits that banks have, the harder it is for them to fund loans, among other things — and interest on loans is where they make most of their money.
CDs are a win-win from a bank’s perspective. They pay you a consistent, higher interest rate in exchange for reliable access to your money for a set term. Your money is also safe up to $250,000 per deposit, as long as the bank or credit union is federally insured, by either the FDIC or National Credit Union Administration (NCUA) respectively.
Interest rates on high-yield savings accounts are also getting a bump, with a number of options topping 4% and some even flirting with 5%. They’re another good option for savers, especially if you want to have consistent access to your money.
How CDs work
When you deposit money into a CD, you’re essentially signing a contract with your bank: You’ll leave your money in place for a certain period of time, and they’ll pay the same amount of interest for that entire term, regardless of what’s happening in the wider market. Terms typically range from 3 months to 5 years, but as mentioned, 1-year CDs are offering the best rates right now.
You put money into CDs as a lump sum, which means you can’t add to it after your initial deposit. Some CDs have minimum deposit requirements, usually around $500 to $1,000. The higher the minimum deposit, the better the interest rate, in most cases. Indeed, average interest rates on 1-year jumbo CDs that require a $75,000 to $100,000 deposit are even better than the ones on traditional CDs right now. But you can still find a great rate of return these days on smaller deposits.
It’s not impossible to withdraw your money from a CD once you deposit it, but in most cases you would have to pay an early withdrawal penalty. Early withdrawal penalties usually equal six months to one year worth of interest on the CD, which could potentially erase any gains you made. So before committing to a CD, make sure that you can afford to part with a portion of your money for that long. In most cases, people have a mix of CDs, savings accounts, and checking accounts so they have options that both grow their savings and allow them to easily access it when needed.
When your CD reaches the end of its term, known as the maturity date, you’ll typically have seven days to decide what to do with it. Your options will include:
- Renewing the CD at the current rate
- Rolling the CD into a different CD
- Moving the CD into a savings account
- Withdrawing the money
If you don’t do anything, the bank will usually renew the CD for you, but then you don’t get to decide if the current rate is the best option for you. In general, when a CD matures, it’s a great time to reevaluate your savings strategy and make sure that you’re getting the best possible rates.
How CDs differ from savings accounts
CDs function like savings accounts in many ways, but there are a few key differences. Just like a savings account, CDs are a deposit account — that is, a place to store your money. Unlike investment accounts that go up and down with the stock market, both savings accounts and CDs are relatively risk-free as long as they’re federally insured.
While savings accounts allow you to withdraw or transfer money when you need it (with the caveat that some banks limit you to six or fewer withdrawals a month), you must leave your money in a CD for the entire length of the term. In exchange, the bank promises to honor the same interest rate for the entire life of the CD. Interest rates on savings accounts, on the other hand, are variable, and may rise and fall depending on what’s happening in the market.
Some analysts believe CD rates have peaked for this cycle, as the Fed is likely to hike the federal funds rate just one more time. That means right now is an excellent time to take advantage of the best CD rates in recent memory. Consider all your options to make sure your money is growing for you as much as possible — because the great thing about CDs is that no matter what happens next, if you lock in a great rate today, it’ll still be working hard for you tomorrow.
Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.
This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at lauren.williamson@hearst.com.