Is a certificate of deposit right for you?.

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Certificates of deposit (CDs) let you deposit your money for a predetermined amount of time at a fixed interest rate and collect your earnings when they mature. And they are now offering the highest yields we’ve seen in over a decade — will many paying more than 4.5%. (See some of the highest rates on CDs you may get now here.) But with some many choices to choose from, what should you opt for?  

Historically jumbo CDs — which may have minimum deposit requirements in the realm of $100,000 — paid the best rates, but these days you don’t need to sink the big bucks into a jumbo CD to access great rates. Indeed, you can access CDs paying upwards of 4% with deposits as little as about $500 — and sometimes nothing at all.

“Jumbo CD rates tend to be slightly better than regular CD rates when you’re comparing options at the same bank, but they’re not the best deals out there,” Chanelle Bessette, banking specialist at NerdWallet, says, adding that “the best CD rates tend to have far lower minimums.”

That said, “jumbo CDs can be a useful option for consumers who have just received a large amount of money as a windfall, perhaps as an inheritance or from the sale of a house, and who wish to let the money earn interest without needing to access it,” Bessette says. 

Here are some of the best rates that both jumbo CDs and shorter term CDs are paying, and what to know before you buy in. 

See some of the highest rates on CDs you may get now here.

Shorter term, lower minimum CDs with the best rates

  • Popular Direct:

    • Rates: 

      • 3-month rate of 4.10% APY

      • 6-month rate of 4.50% APY 

      • 12-month rate of 4.75% APY 

    • Minimum deposit: $10,000

    • Other things to know: Although that initial investment is high — and comes with a steep 270-day simple interest withdrawal penalty — the rates here are highly competitive.

  • First Interest Bank

    • Rates: 

      • 3-month rate of 2.02% APY

      • 6-month rate of 4.39% APY

      • 12-month rate of 4.75% APY

    • Minimum deposit: $1,000

    • Other things to know: The 3-month term offering has a 90-day interest early withdrawal penalty while the 6- and 12-month offerings have a 180-day interest penalty.  

  • Alliant Credit Union

    • Rates: 

      • 12-month rate of 4.60% APY

      • 18-month rate of 4.25% APY

      • 24-month rate of 4.25% APY

    • Minimum deposit: $1,000 

    • Other things to know: While there is no penalty for monthly dividend withdrawals at Alliant, early withdrawal penalties apply if the CD is closed ahead of its maturity date.  You can also keep your account open with as little as $5. 

See some of the highest rates on CDs you may get now here.

Jumbo CDs with the best rates

But while jumbo CDs historically offer better rates across the board, these days the space has become more competitive. Nevertheless, here are some areas where it still pays to go jumbo, if you can afford the large account minimums: 

  • Lafayette Federal Credit Union

    • Rates: 

      • 1-year rate of 4.58% APY

      • 3-year rate of 4.68% APY

      • 5-year rate of 4.78% APY

    • Minimum deposit: $100,000 

    • Other things to know: Certificates automatically renew and charge an early withdrawal penalty for leaving early. You must also establish an account with Lafayette Federal Credit Union or be an existing member. 

  • Connexus Credit Union:

    • Rates: 

      • 1-year rate of 4.76% APY

      • 3-year rate of 3.96% APY

      • 5-year rate of 3.76% APY

    • Minimum deposit: $100,000

    • Other things to know: No membership is needed to open an account, however you will be asked to make a $5 donation to the Connexus Association for charitable giving purposes. 

  • Credit One Bank

    • Rates: 

      • 1-year rate of 4.70% APY

      • 18-month rate of 4.70% APY

      • 5-year rate of 4.45% APY

    • Minimum deposit: $100,000

    • Other things to know: Manage your account with a mobile app and take advantage of the bank’s Loyalty Rate increase of 0.05% for renewing your CD at the end of its term.  

  • Navy Federal Credit Union:

    • Rates: 

      • 1-year rate of 4.45% APY

      • 3-year rate of 4.25% APY

      • 5-year rate of 4.25% APY

      • 7-year rate of 4.25% APY

    • Minimum deposit: $100,000

    • Other things to know: Renewal for each of these offers is available after reaching their respective maturation dates.

Things to know before you buy a CD

One feature that is pretty common across the board among CDs are their minimum deposit requirements to open an account. CDs that are locked in for the shortest terms of three months generally come with the lowest requirements of $500 for CDs from Citibank or America First Credit Union, for example. Although those offer rates at 3.25% APY and 2.35% APY, respectively, providers with higher account minimums, as you can imagine, offer higher rates: Popular Direct’s 3-month term CD has a 4.10% APY but requires a minimum account deposit of $10,000. 

For those with longer terms, the minimums are generally higher. For example, the BMO Harris 5-year term CD has a rate of 4.50% APY, but comes with a $1,000 deposit minimum; while the 5-year term CD at Bread Savings has a rate of 4.25% APY and requires a $1,500 deposit minimum. 

Just about all of the available offers for jumbo CDs these days require a minimum deposit of $100,000. Although that isn’t for everyone, Greg McBride, senior analyst at Bankrate, says the high buy in doesn’t always equal bigger rewards.

“As with any certificate of deposit, be fully aware of the policies and penalties involved with early withdrawal,” says McBride. “Locking into a longer maturity CD typically involves a more significant penalty for early withdrawal than a shorter maturity, yet the yields are actually a bit higher for shorter maturities. If in doubt about your ability to live without the money for the entire term, go with a shorter maturity.”

Why are CD rates going up?

From December 2015 to 2018, the Federal Reserve raised its benchmark interest rate nine times before later changing course in late 2019. In 2020, when the COVID-19 pandemic hit, the Fed then took benchmark rates down to near-zero to assist in the recovery. Flash forward to 2023 and the fed funds rate has climbed to 4.50% to 4.75%, resulting in a direct impact on savings rates, according to Bankrate. 

“CD yields are the best in 15 years, and the returns on shorter maturity CDs — one year and less — have a bit more room to run before peaking,” says McBride. “Longer maturity CDs — those longer than one year in length — may not get much better and could pull back if you wait too long so lock those in the next month or so to get the best yields.”

But that’s not to say CD rates won’t keep climbing. In the 1980s, 5-year term rates for CDs were more than double where they are today at around 12%, according to Bankrate data. Also around that time; the fed funds rate was at its highest level ever of 14.6%.

“Though no one knows for sure whether interest rates will continue to increase in 2023, it seems like a solid possibility since inflation is still high,” Bessette says.

See some of the highest rates on CDs you may get now here.

Are there better options?

Although the rates that come with CDs and jumbo CDs are often higher than traditional or high-yield savings accounts, one of its most inherent features is one that also works to its detriment, says Marianela Collado, a certified financial planner with Tobias Financial Advisors.

“The rate on short-term instruments is so attractive that I don’t see value in anything where funds are locked in for a long period of time,” Collado says when considering terms associated with CDs and jumbo CDs. 

Offerings from money market accounts, she notes, are paying over 4% and short-term U.S. Treasurys are generally a little shy of 5% for maturities of six months or less. “The reason for pause is the idea of putting amounts in excess of the FDIC insurance with any one bank,” Collado says. “Why not go straight to U.S. Treasurys for government backing?”

One thing to keep in mind is that any accounts that exceed $250,000 are not FDIC protected, “which is necessary if a bank goes belly up,” Collado says. “If you go directly into U.S. Treasurys, this FDIC is a moot point because you are investing directly in the government system that backs the FDIC insurance.”

The advice, recommendations or rankings expressed in this article are those of MarketWatch Picks, and have not been reviewed or endorsed by our commercial partners.

By Sia