Even though 1-year CD rates are currently higher, opting for a high-yielding 5-year CD can still be beneficial in the long run. This is because it guarantees an excellent Annual Percentage Yield (APY) over many years, regardless of market fluctuations.
A certificate of deposit (CD) is a time deposit that pays a fixed interest rate for a specified period, typically ranging from three to 60 months. Due to the restriction on accessing funds during this time, CD rates are usually higher than savings account interest rates.
While longer-term CDs traditionally offer higher rates, 1-year CDs are currently paying the highest APYs in 2023. However, 5-year CD rates are not far behind, so it may be worth considering locking in a competitive rate while available.
Here are some pros and cons of different 5-year CDs:
1. Pros: $0 minimum deposit, ability to choose monthly interest payouts.
Cons: Slightly higher rates may be available elsewhere, early withdrawal fee equals 180 days of interest. Minimum deposit: $1,000.
2. Pros: Easy access to transparent product information on the website, simple and quick account opening process.
Cons: Minimum deposit higher than some online banks, early withdrawal penalty equals 360 days of interest, which is higher than many banks.
3. Pros: Minimum deposit lower than many online banks, highly rated mobile app.
Cons: Minimum deposit may be prohibitively high for some, customer service unavailable on weekends or holidays, early withdrawal penalty equals 270 days of interest, on the higher side.
4. Pros: Bonus rate upon renewal of 1, 2, or 3-year CD, ability to choose monthly interest payouts.
Cons: Minimum deposit higher than some online banks, early withdrawal penalty equals 365 days of interest, higher than many banks.
5. Pros: Highly rated mobile app, availability of bump-up, no-penalty, and IRA CDs.
Cons: Minimum deposit higher than some online banks, early withdrawal penalty equals 730 days of interest, which is the steepest we’ve seen.
6. Pros: Ability to choose monthly interest payouts, customer service available 24/7 by phone.
Cons: Early withdrawal penalty equals 180 days of interest, can’t use any BMO Harris branches as a BMO Alto customer.
7. Pros: Anyone can become a member, CDs available in standard, jumbo, and IRA versions.
Cons: Minimum deposit higher than some online banks, early withdrawal penalty equals 180 days of interest.
8. Pros: Interest compounds daily, customer service available 24/7 by phone.
Cons: Minimum deposit higher than most online banks, early withdrawal penalty equals 730 days of interest.
Consider a 5-year CD if you have extra cash you won’t need for the next five years and want to earn a moderate return while minimizing risk. Keep in mind that CDs held at FDIC-member banks and NCUA-member credit unions are insured up to $250,000 per depositor, per account ownership type.
However, investing in the stock market may offer potentially higher returns, albeit with higher risk. It ultimately depends on your goals, risk tolerance, and time horizon. A high-yield savings account can also be a good middle ground for some of your money, offering liquidity and safety while still delivering a competitive APY.
If you need the money sooner or want to take advantage of the best 1-year CD rates, a shorter-term CD may be more suitable. Additionally, consider a CD ladder, which involves splitting your deposit into multiple CDs with varying maturities to provide liquidity and manage changing interest rates.
CDs are worth considering if you desire a guaranteed rate of return in a federally-insured account and want to keep your money out of immediate reach while earning a modest return. However, if easy access to cash or higher potential returns are your priorities, other investments like stocks, ETFs, or index funds may be more suitable.
Remember to diversify your investment portfolio and consider consulting with a financial advisor for personalized guidance.
In conclusion, the best 5-year CD rates are currently exceeding 4.00% APY, with online banks offering the highest rates. If you require access to your funds sooner, explore shorter-term CDs, no-penalty CDs, or high-yield savings accounts. Keep in mind that CDs alone may not provide the returns necessary for wealth-building and should be part of a diversified investment strategy.