A rate on certificate of deposit (CD) is the annual percentage yield (APY) that a CD pays to the depositor. A CD is a type of savings account that requires a fixed amount of money to be deposited for a fixed period of time, usually ranging from a few months to several years. The depositor agrees not to withdraw the money before the maturity date, or else pay a penalty fee. In return, the depositor receives a higher interest rate than a regular savings account.
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The rate on CD depends on several factors, such as the term length, the amount deposited, the financial institution, and the prevailing market conditions. Generally, longer-term CDs offer higher rates than shorter-term ones, and larger deposits may qualify for higher rates as well. However, different banks and credit unions may offer different rates for the same term and deposit amount, so it is important to shop around and compare the best CD rates available.
According to various sources1234, some of the highest CD rates in October 2023 are as follows:
- For a 3-month CD, TotalDirectBank offers a 5.66% APY with a minimum deposit of $25,0001.
- For a 6-month CD, CommunityWide Federal Credit Union offers a 5.25% APY with a minimum deposit of $1,0002.
- For a 12-month CD, CommunityWide Federal Credit Union offers a 5.50% APY with a minimum deposit of $1,0002.
- For a 24-month CD, PedFed Credit Union and First National Bank of America offer a 4.60% APY and a 4.80% APY respectively, both with a minimum deposit of $1,00023.
- For a 36-month CD, First National Bank of America offers a 4.60% APY with a minimum deposit of $1,0003.
- For a 48-month CD, First National Bank of America offers a 4.65% APY with a minimum deposit of $1,0003.
- For a 60-month CD, First National Bank of America offers a 4.65% APY with a minimum deposit of $1,0003.
These are some of the best CD rates that can be found online or at nationwide institutions. However, some local banks or credit unions may offer even higher rates for their members or customers in specific regions or markets. Therefore, it is advisable to check with your local financial institutions as well before opening a CD account.
CDs are generally considered safe and low-risk investments, as they are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) up to $250,000 per depositor per institution. However, CDs also have some drawbacks and limitations that savers should be aware of.
One of the main disadvantages of CDs is that they have early withdrawal penalties, which means that if you withdraw your money before the maturity date, you will have to pay a fee and forfeit some or all of the interest you have earned. The penalty amount varies depending on the bank or credit union, the term length, and the amount withdrawn. Therefore, it is important to read the fine print and understand the terms and conditions before opening a CD account.
Another drawback of CDs is that they have low liquidity, which means that they are not easily accessible or convertible into cash. Unlike savings accounts or money market accounts, which allow you to withdraw or transfer money at any time without penalty, CDs lock up your money for the duration of the term. This can be problematic if you need access to your funds for an emergency or an unexpected expense.
A third drawback of CDs is that they have reinvestment risk, which means that you may not be able to reinvest your money at the same or higher rate when your CD matures. Interest rates are constantly changing due to market forces and economic conditions, and there is no guarantee that you will find another CD with the same or better rate when your current one expires. This can reduce your earning potential and affect your long-term savings goals.
Therefore, before opening a CD account, you should consider your financial situation and objectives carefully. You should only invest money that you can afford to lock up for the term length without compromising your liquidity or flexibility. You should also diversify your portfolio and allocate your funds across different types of accounts and investments to reduce your risk and maximize your returns.
Savings Bonds vs. CDs: What’s the Difference?
U.S. savings bonds and CDs are both types of low-risk investments that pay interest to the investor. However, they have some key differences that may affect your choice depending on your financial goals and preferences. Here are some of the main differences between U.S. savings bonds and CDs:
- Issuer: U.S. savings bonds are issued by the U.S. Treasury and are backed by the full faith and credit of the United States government1. CDs are issued by banks or credit unions and are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) up to $250,000 per account12.
- Term: U.S. savings bonds have a fixed term of 30 years, but they can be redeemed after one year with a penalty of three months’ interest if redeemed before five years1. CDs have various terms ranging from one month to 10 years, and they can be redeemed at maturity without penalty or before maturity with a penalty that varies by institution23.
- Interest rate: U.S. savings bonds have two types: Series EE and Series I. Series EE bonds pay a fixed interest rate that is guaranteed to double the value of the bond over 20 years1. Series I bonds pay a fixed interest rate plus a variable interest rate that is adjusted every six months based on inflation1. CDs pay a fixed interest rate that is determined by the term length, the amount deposited, and the market conditions at the time of purchase23.
- Taxation: U.S. savings bonds are exempt from state and local taxes, and federal taxes are deferred until redemption or maturity1. CDs are subject to federal, state, and local taxes on the interest earned in the year it is received23.
- Liquidity: U.S. savings bonds are less liquid than CDs, as they cannot be redeemed within the first year and have a penalty for early redemption within the first five years1. CDs are more liquid than savings bonds, as they can be redeemed at any time with a penalty that may be lower than the savings bond penalty depending on the institution23.
As you can see, U.S. savings bonds and CDs have different advantages and disadvantages depending on your time horizon, risk tolerance, and tax situation. U.S. savings bonds may be more suitable for long-term investors who want to benefit from inflation protection, tax deferral, and government guarantee1. CDs may be more suitable for short-term investors who want to take advantage of higher interest rates, FDIC or NCUA insurance, and greater flexibility23.
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