Why are banks pushing CDs?
AKA people like you and me. To dissuade banks from borrowing money, the Fed charges a higher interest rate. It's more affordable for banks to use deposit funds at a 0.10% APY than it is to borrow from the Fed whose rates could top 4% by the end of the year. This is why banks are pushing CDs right now.
The national deposit rate for 5-year CDs is 1.41%, up from less than 0.50% in June 2022. Yet many banks are offering rates well above that—some 5-year CDs have annual percentage yields (APYs) that exceed 4%, and some 1-year CDs are offering APYs well above 5%.
And when the Fed raises its target rate, banks typically follow suit and increase their interest rates—including those on CDs. That's because when the Fed's target rate goes up, the cost of borrowing from other banks increases.
Better returns than savings deposits
Because CD account holders can't take their money back at a moment's notice like savings account holders can, CDs are more valuable to banks than savings deposits. Banks typically pay CD investors a higher yield in exchange for locking up their money for a set term.
Top Nationwide Rate (APY) | Total Earnings | |
---|---|---|
6 months | 5.76% | $ 288 |
1 year | 6.18% | $ 618 |
18 months | 5.80% | $ 887 |
2 year | 5.60% | $ 1,151 |
If inflation is rising, it could outpace the rate of return you're earning on your CDs, especially in a low interest rate environment. This means even though your savings is growing, it won't stretch as far when it's time to spend it. Notably, this is also a risk when keeping money in savings and money market accounts.
There's usually a penalty if you withdraw funds early, and many CDs have a minimum deposit requirement. CDs commonly offer higher interest rates than savings accounts, but you could get stuck with lower interest if rates fluctuate during your CD term.
In today's financial climate, where uncertainty looms and market conditions can change rapidly, putting $5,000 in a 6-month CD is a smart move for many investors. The higher interest rates, liquidity, low risk, diversification benefits and predictable returns make it a compelling option.
Which bank gives 7% interest on a savings account? There are not any banks offering 7% interest on a savings account right now. However, two financial institutions are paying at least 7% APY on checking accounts: Landmark Credit Union Premium Checking Account, and OnPath Rewards High-Yield Checking.
You can find 6% CD rates at a few financial institutions, but chances are those rates are only available on CDs with maturities of 12 months or less. Financial institutions offer high rates to compete for business, but they don't want to pay customers ultra-high rates over many years.
What is the downside of a CD?
CDs offer higher interest rates than traditional savings accounts, guaranteed returns and a safe place to keep your money. But it can be costly to withdraw funds early, and CDs have less long-term earning potential than certain other investments.
Having multiple CDs can be a great way to diversify your portfolio without sacrificing as much liquidity. Risk is low, and CDs provide steady returns. Just know that owning too many CDs could cut you off from other high-return investments. Investing is one part of the financial journey.
Use Multiple CDs for Your Significant Savings
Breaking the funds up and putting money into numerous CDs at different banks can help you insure your CDs beyond the $250,000 limit available at just one bank. But always speak with a bank representative before opening a CD to confirm the bank is FDIC-insured.
Open your CD as part of a retirement account
So, your income taxes will be deferred until you tap into your IRA in retirement. If you opt for a Roth IRA, your money grows tax-free. You do pay income taxes on the money you open the IRA with, but you won't pay income taxes on its growth.
If you purchase a short-term CD that matures the same year it was purchased and earn $10 or more, you'll have to pay taxes on it for that year. If the term of such a CD spans over two calendar years, you'll pay taxes on the interest you earn on two consecutive tax returns.
Today's impressive CD rates are the result of the United States Federal Reserve increasing its federal funds rate in an attempt to combat inflation. As inflation slows, there's no telling how long these high rates will last. So, it's wise to lock in today's high rates by investing $15,000 into a 1-year CD now.
CDs don't have monthly fees, but most have an early withdrawal penalty and don't let you add funds after the initial deposit. Like regular savings accounts, certificates of deposit are insured, so you get your money back in the unlikely event your bank goes bankrupt.
For some people, it can be worth putting money into a CD. If a person is seeking a riskless investment with a modest return, CDs are a good bet—you'll earn a higher rate than you would with a checking or savings account, but you'll have to commit your funds for a fixed period.
Where to put money during a recession. Putting money in savings accounts, money market accounts, and CDs keeps your money safe in an FDIC-insured bank account (or NCUA-insured credit union account). Alternatively, invest in the stock market with a broker.
As you can see from the scenario above, choosing to be paid at maturity can sometimes earn you more in interest, because the higher interest rate can offset the value of compounding interest on the monthly option. Plus the longer you stow your money away, the more interest you'll earn.
What bank is paying 5% on CDs?
Bank | Term length | APY* |
---|---|---|
Signature Federal Credit Union | 12 months | 5.00% |
Department of Commerce Federal Credit Union | 12-23 months | 5.02% |
Ally Bank | 12 months | 4.65% |
Prime Alliance Bank | 6 months, 12 months | 4.95% |
- Lafayette Federal Credit Union – 5.56% APY.
- TotalDirectBank – 5.50% APY.
- Vibrant Credit Union – 5.50% APY.
- Financial Resources Federal Credit Union – 5.43% APY.
- ConnectOne Bank – 5.40% APY.
- Apple Federal Credit Union – 5.40% APY.
- Alliant Credit Union – 5.40% APY.
- Bask Bank – 5.40% APY.
The Financial Partners Credit Union 8-Month Certificate Special pays the highest CD rate overall. You can earn 6.50% APY on an 8-month CD if you meet certain requirements.
DCB Bank savings account interest rates
DCB Bank offers up to 8% interest on savings accounts with balances ranging from Rs 10 lakh to less than Rs 2 crore. The bank pays 7.75% interest on savings account balances ranging from Rs 10 crore to less than Rs 200 crore. The rates are effective from September 27, 2023.
Savings Account | APY |
---|---|
Valley Direct High Yield Savings Account | 5.05% APY |
CIT Platinum Savings Account | 5.05% APY on balances of $5,000 or more; 0.25% APY on balances under $5,000 |
Salem Five Direct eOne Savings | 5.01% APY |
Laurel Road High Yield Savings Account | 5.00% APY |