The best CD rates for July 2023

CD rates haven’t been this high in years. The Federal Reserve has been raising interest rates all year to fight inflation, pushing the annual percentage yield on CDs to attractive levels. If you’re looking for a CD, consider opening one with a federally insured issuer listed below.

Shopping for the best CD rates

To find a CD that best meets your needs, shop for one that combines the best available rate, a term that matches your savings goal, and a minimum deposit that fits your budget. You should also consider term length and early withdrawal penalties in case a financial emergency comes up.

Look for a bank, credit union, or neobank that offers a CD that works for you, and then evaluate other factors such as branch locations, a robust set of online tools, plentiful customer service options, and easy-to-follow instructions for opening and closing a CD.

The term of a CD affects the amount of interest — or annual percentage yield — you’ll be offered. APYs offered on CDs rise as terms increase from short to medium term. But longer terms don’t always equal higher CD interest rates.

In the current market, average interest rates increase between 1-month and 1-year CDs, as the table below shows. However, APYs flatten as CD terms extend past one year.

What is a CD?

A certificate of deposit, called a CD for short, is a type of savings account. You can open a bank CD by depositing a lump sum with a traditional or online bank. Credit unions offer CDs too, called share certificates.

While CDs earn compound interest similarly to deposit accounts such as savings accounts, high-yield savings accounts, money market accounts, and even some checking accounts, CDs have higher interest rates. In exchange for this more competitive, fixed APY, you must agree to leave your cash in the bank for a set period of time, called the CD’s term.

Unlike traditional savings or checking bank accounts, the money you put into a CD isn’t readily available to you. If you decide to withdraw funds from a CD before its maturity date, your bank may charge you a penalty for accessing your money early. An early withdrawal penalty could offset some or all of the interest you earn on a CD. In some cases, you could even lose part of your initial deposit.

Picking the right CD could come down to finding the highest APY for the term you’re seeking. But you should also research early withdrawal penalties in case an emergency comes up, and you need to access your money before the term ends.

Pros and cons of a CD account

Pros

Cons

• You’ll typically pay a penalty if you need your cash before a CD’s maturity date.

• The competitive rates on CDs — especially long-term CDs — might not keep up with inflation.

• Although CDs are safer, they offer lower returns than mutual funds and stocks.

Types of CDs

In addition to traditional certificates of deposit, there are several other types of CD to consider.

• Bump-up CDs: With a bump-up CD, you can request an increase in your APY if interest rates rise at your financial institution before your CD matures. In general, you can only request one rate increase per term with a bump-up CD. Initial APYs on bump-up CDs are often lower.

• Step-up CDs: Step-up CDs are similar to bump-up CDs. However, with a step-up CD, your financial institution will increase your APY at predetermined times.

• Callable CDs: A callable CD gives the bank the right to terminate the CD before its maturity date. A callable CD might offer a higher APY than a traditional CD.

• No-penalty CDs: A no-penalty CD allows you to take funds out of your account before the maturity date without paying an early withdrawal penalty. APY’s are usually lower on no-penalty CDs.

• Bull CDs: The interest you earn on bull CDs is tied to a specific market index. If that market index rises, a bull CD will pay you a predetermined percentage in the form of interest. Most bull CDs also feature a guaranteed minimum rate of return.

• Bear CDs: Bear CDs are also tied to a specific market index, but the returns you may earn from a bear CD are based on shares of any market declines that occur.

• Jumbo CDs: With a jumbo CD, a bank requires a larger opening minimum deposit requirement – often $100,000 or more – than it would for a traditional CD.

• Uninsured CDs: Uninsured CDs are not NCUA- or FDIC-insured. They may offer a higher APY, but think carefully and consider seeking professional advice before you commit to this higher-risk account.

• Variable-rate CDs: When you open a variable-rate CD, the APY can fluctuate with market interest rates. If interest rates increase, you’ll earn more on your savings. But if rates fall, your APY could drop.

• Zero coupon CDs: Zero coupon CDs don’t pay interest during their term. Rather, you purchase the CD at a discount. When the CD matures at the end of its term, the bank pays you its full face value.

How to save with CDs

Below are three common CD savings strategies to consider.

CD ladder

• CD laddering is a savings strategy that involves opening multiple CDs with staggered maturity dates. By spacing out the dates at which your CDs mature, you maintain access to a portion of your savings at periodic intervals while still earning higher returns than with a savings account.

CD barbell

CD bullet

How to choose a CD

When choosing a CD, consider the following factors:

• Rates: Banks and credit unions control their rates, so you’ll find that the APYs on CDs can vary widely between financial institutions. Shop around to find the best rates.

• Rate type: When comparing APYs, find out whether the CD has a fixed or variable APY.

• Term: CDs can have terms as short as one month or as long as 25 years.

• Penalties or monthly fees: With a typical CD, you pay a penalty if you withdraw money before its maturity date. You could lose some or all of your earned interest, and even part of your principal in some cases.

• Minimum deposit: CD minimums vary by bank or credit union and typically range from $500 to $5,000.

Kat Tretina contributed to this article.