With CD interest rates reaching levels we haven’t seen in over a decade due to multiple rate hikes by the Federal Reserve, today presents a golden opportunity for savers. However, with the Federal Reserve dialing down its target rate as of September, this might well be your last moment to secure a highly competitive rate.
It’s crucial to shop around when looking at CDs, as rates differ significantly from one bank to another. Let’s break down what today’s CD rates look like and where you might find the best deals.
Traditionally, long-term CDs tempted savers with higher interest rates than their short-term counterparts. The logic was simple: banks were compelling customers to keep their funds parked for longer durations by offering richer returns. Interestingly enough, the scenario has flipped in the current financial landscape.
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Even as we approach the end of 2024, CD rates are still robust relative to historical averages. Interestingly, the most attractive rates now are linked to shorter-term CDs, generally a year or less.
To illustrate, Marcus by Goldman Sachs currently offers a leading 4.25% APY on its one-year CD, which requires a minimum deposit of $500.
Here’s a closer look at some standout CD rates from our trusted partners:
When contemplating CD investments, the annual percentage yield (APY) becomes a crucial factor—reflecting your total earnings over a year, factoring in both the basic interest rate and the frequency of compounding, which typically happens daily or monthly.
Imagine putting $1,000 into a one-year CD with an APY of 1.81%, with monthly compounding. By the time the year wraps up, your total would edge up to $1,018.25—resulting from your initial $1,000 growing by $18.25 in interest.
If, on the other hand, you opted for a 4% APY over the same period, your ending balance would escalate to $1,040.74, comprising $40.74 in interest.
And, as you might predict, the more you put in, the higher your earnings. If you were to deposit $10,000 into a one-year CD bearing a 4% APY, you would receive a tidy sum of $10,407.42 at maturity, earning you $407.42 in interest.
Check out more: What constitutes a good CD rate?
While the interest rate is often the foremost consideration when choosing a CD, it shouldn’t be the sole focus. Several types of CDs may offer unique perks, perhaps at the cost of a slightly reduced rate. Here are a few variations to ponder beyond the traditional CD:
Bump-up CD: This option allows you to increase your interest rate if your bank’s rates rise during the term. However, you usually get to “bump up” your rate only once.
No-penalty CD: Sometimes called a liquid CD, this variant lets you withdraw your money before maturity without incurring a penalty.
Jumbo CD: These require larger minimum deposits, generally $100,000 or more, with typically higher returns. However, given current CD rate trends, the margin between traditional and jumbo CDs may not be substantial.
Brokered CD: As implied, these are procured through a brokerage rather than directly from a bank. They might offer higher rates or more flexible terms, but they accompany greater risks and aren’t always FDIC-insured.
Selecting a CD that aligns with your financial goals involves weighing several factors, and understanding these variations can help tailor your investment to meet your needs.
