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January 2, 2023 – Forbes Advisor

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You can earn 4.16% interest and more on your money with today’s best CDs. In addition, the average yields of CDs are gradually increasing. Discover the best prices offered on CDs of different lengths.

Related: Compare the best CD prices

Rates shown are based on the highest click-through rate for each CD term. For banks and credit unions offering the best rates, see our list of best CD rates.

Highest CD rates today: 1 year, 6 month, 9 month terms

The highest interest rate currently offered on a one-year CD — one of the most popular CD terms — is 4.40%, according to data from Bankrate.com. If you land a 12 month CD with a rate in that neighborhood, you get a good deal. A week ago the best rate was the same.

The average APY, or annual percentage yield, on a one-year CD is now 2.35%, the same as a week ago. APY provides a more accurate representation of the annual interest you will earn with a CD because it takes compound interest into account. This is the interest you earn not only on your deposit (or principal) but also on the interest itself.

If you’re interested in a shorter-term CD, today’s best six-month CD rate is 4.21%. That compares to 4.21% a week ago. The current average APY for a six-month CD is 1.83%, down from 1.82% last week at this time.

Nine-month CDs are offered today at an average APY of 2.46%, the same as a week ago.

Highest CD rates today: 18-month and 2-year terms

The highest rate on an 18-month CD is currently 4.16%, the same as a week ago.

If you can hold out for two years, 24-month CDs today are offered at interest rates as high as 4.31% APY. The highest rate last week at this time was similar at 4.31%. Two-year CDs now have an average APY of 2.48%. It’s the same as last week at this time

A CD is a type of savings account with a fixed interest rate and a time lock. You are not expected to touch your deposit until the end of the CD term, whether in six months, one year or five years. Your patience is rewarded with interest that is usually better than what you would earn with a regular savings account.

If you withdraw money from a CD before ‘maturity’ – when it reaches the end of its term – and you can be slapped with hefty penalties. For example, you can lose up to six months’ interest if you pre-withdraw a one-year CD.

Highest CD rates today: 3-year and 5-year terms

CDs with longer terms tend to have some of the most attractive interest rates and APYs, if you’re willing to keep your money locked away for years.

The average APY on a three-year CD is now 2.64%, the same as a week ago.

On a five-year CD, the highest rate today is 4.45%, the same as a week ago. APYs are averaging 2.77%, down from 2.76% in the same period last week.

The longer the duration, the more severe the early withdrawal penalty. It’s not uncommon to lose a full year of interest or more if you open a five-year-old CD too soon. Be absolutely certain that you understand the penalty before making your investment.

Related: CD interest rate forecasts: how good will they be?

How CDs Work

You “buy” a CD from a financial institution by opening the account with a lump sum deposit, which becomes the principal of the CD. Many CDs and stock certificates (accounts similar to bank CDs but offered by credit unions) have minimum deposit requirements, sometimes in the tens of thousands of dollars.

Once you have deposited your capital, you start the countdown to your timed investment and start earning interest. The bank or credit union will provide you with regular statements showing the amount of interest you are accumulating.

Remember, you must avoid the temptation to dip into your CD before the end of the term. Early withdrawal penalties can be so severe that they take over your interest and then start eating away at your capital.

The benefits of CD laddering

Want to earn a higher return, but worry about keeping your money shackled for years? A CD ladder can help you get good returns and make your investment more liquid.

You build a ladder by investing your money in multiple CDs with different duration terms. You can buy a one-year CD, a two-year CD, a three-year CD, a four-year CD, and a five-year CD. As each of the short-term CDs matures, you replace it with a new five-year CD.

Take this course and in a few years you will have a better yielding five-year CD that matures every year. If you ever have a bad year, you can take some of the money from the expiring CD and use it to pay bills instead of pouring it all into a new CD.

You need to shop around to find the best CD rates. Banks and credit unions compete by offering attractive returns to earn your business, so shopping around before buying a bank CD or credit union stock certificate is a must.

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