Are CDs Worth It Right Now?
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Kathy Evans
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Elizabeth Constantineau
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Investing in a high-yield savings account or a certificate of deposit is a great way to grow your money. Interest rates on CDs are higher now than in the past, which is especially appealing considering the high rate of inflation in today’s economy. But are CDs worth it? Keep reading to find out.
Are CDs Worth It?
CDs might be worth it to you if you want your money to grow and you don’t need the funds you invest anytime soon. Keep in mind that interest rates on CDs can vary significantly depending on the financial institution.
With recent interest rate hikes, it’s a good idea to consider shopping around for the best deal on high-yield savings and CD accounts. You might earn more on your CD with an online bank instead of a traditional brick-and-mortar bank or credit union, even if you’ve never heard of the online outlet before.
Interest rates on one-year to 18-month CDs can be higher than on five-year or more CDs because rates are expected to fall in the next few years. Rates on CDs could possibly decrease in 2024, so it might be a good idea to invest in a longer-term CD this year.
What Is a CD?
A CD is a type of savings account banks and credit unions offer their customers. When you purchase a CD, you agree to keep your money in the account for a specified period of time. If you withdraw your money before the CD matures, you may risk paying an early withdrawal penalty fee.
Before purchasing a CD, be sure to compare different aspects of the offers, including:
- The term or maturity period — the length you agree to leave your money in the CD
- The earned interest rate
- The penalty amount for early withdrawal
After a CD matures or reaches the end of its term, you can withdraw your initial deposit plus any interest earned. If your CD is penalty-free, you can withdraw your money before the end of the term. Early withdrawal penalties are usually low.
Are CDs Secure?
Yes, CDs are secure if you have an account at an insured financial institution.
The Federal Deposit Insurance Corporation insures CDs at banks up to $250,000.
If you bank with a credit union, the National Credit Union Administration insures CDs up to $250,000.
Benefits of Investing in CDs
Earning higher interest rates is not the only benefit of investing in CDs. Other reasons to open a CD account include:
- Safety: Despite reports of recent bank failures, CDs are reliable and safe places to park your money because the FDIC insures up to $250,000. Even if your bank or credit union fails, your savings will be safe.
- Locked rates: CD interest rates are locked for the full term. For instance, if you open a six-month CD with a 5.00% interest rate today and three months from now, the interest rate drops to 4.75%, your rate of 5.00% will not change.
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National CD Deposit Interest Rates
Here are the average national interest rates for CDs as of Oct. 16, 2023, according to the FDIC.
| CD Term | National Average Interest Rate |
|---|---|
| 1 month | 0.22% |
| 3 months | 1.42% |
| 6 months | 1.39% |
| 12 months | 1.79% |
| 24 months | 1.50% |
| 36 months | 1.38% |
| 48 months | 1.30% |
| 60 months | 1.38% |
Highest Interest Rate CDs
Banks now offer higher interest rates on CDs to attract new customer deposits and remain competitive. Here are a few CD accounts that have the highest rates.
| Financial Institution | CD Term and APY |
|---|---|
| Ally Bank | Term: 18 months APY: |
| First Internet Bank | Term: 12 months APY: |
| Bread Savings | Term: 12 months APY: |
| CFG Bank | Term: 12 months APY: |
CD Investing Strategies: Using Ladders and Bump-ups
Bump-up CDs allow you to adjust your CD’s interest rate one time during the maturity period. For example, if you purchase a CD at a 3.00% APY, and the interest rate jumps to 5.00% during your term, you can request an interest rate increase, or bump-up, from your bank during your term.
You can also invest in several CDs with varying maturities or terms. The benefit is higher rates on more mature CDs while making some of your invested funds available for withdrawal sooner.
With a CD ladder savings strategy, you open multiple CDs at separate intervals. This strategy will give you higher interest rates on long-term CDs and access to your cash at different times throughout your investment periods.
How To Build a CD Ladder
Here’s an example of how to stagger your CD investments using the ladder method to mature them in succession instead of at the same time.
- Suppose you have $3,000 to invest.
- Divide the $3,000 across five CDs of $600 each, ranging from one-year to five-year maturity terms.
- When the first CD matures, you can withdraw it and reinvest that money into a new CD that matures over a different period to continue the ladder.
Is Investing in a CD Right for You?
A huge advantage of investing in a CD is the guaranteed interest rate. This can be especially attractive for a person near or at retirement looking for a low-risk investment option. Some financial institutions now offer four times more than the average 1.79% APY for a one-year CD.
Final Take
When purchasing a CD, select your maturity date or term length based on when you expect you’ll need your money. For example, if you’re saving money for an event or a large purchase five years from now, you should choose a CD that matures in five years. If you’re looking for a low-risk investment or savings vehicle, then a CD might be worth it.
CD Interest Rate FAQ
Here are the answers to some of the most frequently asked questions about CDs and interest rates.- Are CDs worth it 2023?
- CDs are a good investment as they come with a level of certainty. Because the rate is fixed, it takes the guesswork out of what future earnings will look like. Plus, most banks pay higher rates on CDs than they do on savings accounts.
- Are CD rates expected to rise 2023?
- It is estimated that interest rates will continue to rise in 2023, but not at the frequency which they did in 2022. When interest rates go up typically interest rates of CDs do as well, but at least it should be slowing down.
- Is it worth getting a CD right now?
- CDs are beneficial for those who have an excess amount of savings and want to invest in something low-risk. For those who live paycheck to paycheck and want to make some additional money through investing, however, CDs might not be the way to go. CDs require you to lock up your money for some time, so pulling the money out early can have consequences. While a CD does act much like a savings account, you will not have access to it early without paying some sort of penalty.
- What will CD rates be in 2023?
- Some projections show five-year CD rates reaching between 4.75% and 5.00% by the end of 2023, according to a report from Forbes.
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Casey Bond and Caitlyn Moorhead contributed to the reporting for this article.
Rates are subject to change; unless otherwise noted, rates are updated periodically. All other information on accounts is accurate as of Oct. 20, 2023.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
- Forbes. 2023. "CD Interest Rates Forecast: How Good Will They Get In 2023?"
- FDIC. 2023. "National Rates and Rate Caps."
- CBS News. 2023. "How much does a $10,000 CD make in a year?"
- Detroit Free Press. 2023. "Online savings accounts, CDs are tempting while interest rates are high."
