When I was in college, I opened a five-year certificate of deposit (CD). I was making a little cash, didn’t have a lot of expenses, and I thought it would be smart to get my money into a savings account that paid a decent yield. At the time — in 2000 — I was able to earn more than 6%.
Those days are long gone. Today, if you put money into a CD, you’re far more likely to see an annual yield closer to 2%. “The best CD rates just aren’t what they used to be,” said Harlan Landes, a former accounting associate with Prudential Financial. “You really have to look around if you want to make the most of your cash.”
If you’re seeking to boost your high-yield savings, adding CDs can be a part of that strategy. Here’s what you need to know about getting the best possible yield.
What goes into the best CD rates?
According to Landes, three main things influence the yield you get. Paying attention can help you find the best CD rates available.
Market interest rates
First of all, CD rates are based on what’s happening in the market. “Right now, we’re in a low-rate environment. Even though the Federal Reserve raised its benchmark rate not long ago, and more rate hikes are coming, the fact is that this is not the environment for savers,” said Landes, who — full disclosure — is also my co-host on the podcast Adulting.tv.
Instead of boosting savings by paying a higher yield, said Landes, the Fed’s economic priority remains encouraging people to borrow money to keep it moving around in the monetary system. Right now the challenge to high-yield savings is the fact that the starting point is so low.
The next biggest factor in determining your CD rate, said Landes, is how long you’re willing to have that money locked up. “Withdrawing money from a CD comes with a penalty,” he pointed out. “So if you are willing to keep your money in a CD for five years or more, you will probably see a higher yield.”
Indeed, when comparing CD rates using Bankrate, the national average for one-year CDs is 1.41%. For five-year CDs, the national average is 2.12% as of this writing.
Size of your deposit
Finally, the size of your deposit makes a difference as well. “When you open a CD product that doesn’t require a minimum deposit, you probably won’t get the highest yield,” said Landes. “However, there are banks that have $10,000 minimum CDs if you want access to the best rates.”
Where to find the best CD rates
Shopping around can provide you with access to the best CD rates. Landes recommended starting with local credit unions or community banks.
“A lot of the time, these smaller institutions are competing against online banks,” said Landes. “They try to attract depositors by offering attractive rates with smaller minimums.”
Using the tool at Deposit Accounts, I was able to find a 10-year CD with a 2.60% yield at a local credit union in Pocatello, Idaho. The minimum CD amount was only $500. However, when I looked at the rate on a 10-year CD offered by a large traditional bank, the yield was a much lower 1.01%.
The downside to looking at credit union rates, though, is the fact that you have to meet membership requirements to open an account. “Some credit unions are finding ways to be more inclusive, but getting access to the rates offered by credit unions can be challenging in some cases,” said Landes.
That’s why he also recommended visiting small community banks and regional institutions. “These banks are always looking to bolster their customer base,” said Landes. Besides, they might also be willing to offer you a level of personal service you won’t find at a big national bank.
Look online to compare CD rates
Landes said it also makes sense to look online when comparing rates. “Online banks led the high-yield savings charge just after the financial crisis. Without the overheads of brick-and-mortar banks, online banks are able to offer higher yields to customers.”
Plus, he noted, when you’re dealing with an online bank, you don’t have to worry about going into a branch to open an account. “Technology has made it easier to access financial services from all over,” said Landes. “You can get a great rate from a bank that doesn’t even have branches, or find a better CD rate at a bank located on the other side of the country.”
There are plenty of websites that aggregate information about CD rates and share it with consumers. A search of those sites can help you quickly compare rates from a variety of banks and credit unions.
Don’t forget to double-check for minimum deposits, though. You can get so caught up in an attractive yield that you might neglect to read the fine print.
Landes said that even if you find a better rate online, it can still be worth going to your credit union or a community bank as well: “In some cases, especially if you’re a long-time customer, local banks and credit unions will at least match the CD rates you find online.”
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