How to Find the Best CD Rates

How to Find the Best CD Rates

CD rates have finally begun recovering from the past decade of historic lows. Current rates now exceed the annual rate of US inflation, which stood at 2.2% in the final months of 2018. If you're looking for a long-term vehicle that complements your investments, CDs are a good place to start.

Online CD Rates Lead the Pack

For most people, the most efficient way to start looking for strong CD rates is online. Online-only banks, a new and steadily growing sector, tend to offer market-beating deposit rates as a means of growing their asset base. You can see a current list of the highest available CD rates in the table below.

Whether you look online or at your local bank, you can expect CDs to grant you higher rates of return than a regular savings account. This is because CDs lock your deposit for the entire term, subjecting you to penalties if you withdraw early. CDs also earn lower rates than most investment products, which reward investors with better returns in exchange for the risk of loss.

Finding Average CD Rates

The first step in getting a good CD rate is to know what's generally available. Determining the average rate on a CD gives you a baseline for comparing the banks you come across in your search. There are several reliable sources that track CD rates, including Federal Reserve Economic Data.

graph of CD rate average

According to the Federal Reserve's weekly observations of the national average, five-year CD rates experienced rapid decline ever since 2009, from a high of 2.30% APY to around 0.80%, where it has remained since 2013. While you can open certificates of deposit at shorter terms ranging from three years to six months, these have even lower average rates than the five-year CD rate as illustrated above. In this context, a good CD rate would be anything that significantly outperforms the average for its particular term length.

Average National CD Rates

CD Term LengthNational Rate
1 month0.11%
3 month0.19%
6 month0.33%
12 month0.59%
24 month0.79%
36 month0.93%
48 month1.03%
60 month1.23%

Online banks consistently outperform rates found in the brick-and-mortar industry, offering much better interest rates on CDs as well as regular savings account options. The highest rates on five-year CDs among online banks far exceed the averages reported by the FDIC. If you're comfortable with opening a CD account at a bank that operates no physical branches and only accepts electronic transfers, consider starting your search for a certificate of deposit online.

Identifying Different CD Types

Online CDs are just one of several different types of CD. With rates so low for so long, banks have come up with a considerable variety of products in an effort to make CDs more attractive to their customers. Besides online CDs, you may find CDs described in a number of ways which might include terms like "market-linked" or "step-rate". Most people will do just fine with traditional CDs, which hold your money for a fixed term in exchange for interest. However, it's useful to know what bankers mean when they refer to other kinds of CDs —although in our opinion, specialized CDs aren't usually worth the extra complications.

Promotional: In periods of extremely low interest, the highest yields often come from temporary promotions designed to attract customer attention to CDs. Promotional CD rates may be exceptionally high, but they sometimes end partway through the CD term, so that you'll be stuck at the lower "standard" rate. Trying to withdraw from the CD at that point would cost you a large penalty fee, usually equal to several months of earned interest.

Step Rate/Bump Up: CDs described as step-rate or bump-up automatically increase their rates at specified intervals during the term. It's more practical to judge step-rate CDs by their overall "blended" APY, rather than their maximum rate. In exchange for the added growth, step rate CDs require higher opening deposits.

Variable/Market-Linked: Some CDs don't earn the same interest rate throughout their term. For example, market-linked CDs earn a rate that's tied to the performance of certain stock indices like the S&P 500. While this is often promoted as a way to earn market returns while staying covered by deposit insurance, market-linked CDs can actually earn 0% in times when the related index goes down in value.

Callable: A callable CD is one that promises a higher-than-usual rate, but which can be canceled by the bank before the end of your term. This feature protects the bank against the possibility that prevailing interest rates fall below the CD's rate, essentially forcing the bank to overpay on the money they've "borrowed" from the CD holder.

No Penalty: The opposite of a callable CD, no penalty or "breakable" CDs allow you to withdraw money from the CD without any of the usual penalties. While callable CDs give you a higher rate than usual, no penalty CDs offer below-average rates to compensate for the increased flexibility you get with the option to withdraw.


Chris Moon

Chris is a Product Manager for ValuePenguin with years of experience in addressing critical questions about mortgages and homeowners insurance. He spends his time evaluating insurance providers and policy features to understand where consumers might find the most cost-effective coverage. Chris has contributed insights to the New York Times and many other publications.