One Big Reason to Buy a 5-Year CD Today
KEY POINTS
- Despite lower rates on 5-year CDs than short-term ones (and some high-yield savings accounts), it can still be worth it since your rate will be locked in for a long time.
- Savings account rates are variable and will likely fall whenever the Fed lowers interest rates.
- Using a strategy like building a CD ladder can allow you to take advantage of the higher rates for the long term and benefit from the better yields on short-term CDs.
If you're shopping for a certificate of deposit, you may notice that short-term CDs have a higher rate than long-term CDs right now. This is pretty unusual, since usually the reverse is true. Banks generally have to pay higher yields in order to get customers to lock up their money for longer.
Those short-term CDs may look pretty tempting, especially since many are paying upward of 5.00%. This was unheard of not too long ago when a great rate was in the range of 2.00% or less.
You might also notice that high-yield savings accounts are offering rates that are as good -- or better -- than the yields 5-year CDs are offering. This is also unusual, since usually CDs pay a higher rate (again, because they need to in order to get you to lock up your funds).
But despite the great deals on savings accounts and short-term CDs, you may actually want to put at least some of your cash into a 5-year CD anyway. Here's why.
Our Picks for the Best High-Yield Savings Accounts of 2024
Capital One 360 Performance Savings
![]() APY
4.25%
Rate info
See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.
Min. to earn
$0
Open Account for Capital One 360 Performance Savings
On Capital One's Secure Website. |
APY
4.25%
Rate info
See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.
|
Min. to earn
$0
|
American Express® High Yield Savings
![]() APY
4.25%
Rate info
4.25% annual percentage yield as of August 24, 2024
Min. to earn
$1
Open Account for American Express® High Yield Savings
On American Express's Secure Website. |
APY
4.25%
Rate info
4.25% annual percentage yield as of August 24, 2024
|
Min. to earn
$1
|
UFB Portfolio Savings Account
![]() APY
5.15%
Rate info
To ensure you keep getting the highest rate at UFB, you'll need to keep an eye on their rates. Occasionally, the bank launches new accounts with higher rates. Existing accounts need to contact the bank to request being moved to one of these new accounts.
Min. to earn
$0
Open Account for UFB Portfolio Savings Account
On UFB's Secure Website. |
APY
5.15%
Rate info
To ensure you keep getting the highest rate at UFB, you'll need to keep an eye on their rates. Occasionally, the bank launches new accounts with higher rates. Existing accounts need to contact the bank to request being moved to one of these new accounts.
|
Min. to earn
$0
|
Buying a 5-Year CD today is still a smart move
Buying a 5-year CD is the only way to lock in your rate and ensure you will be able to continue earning today's yields for half a decade. The rate you get when you sign up for a CD is guaranteed to last for the duration of the term until the CD matures.
If you check out the best 5-year CD rates, you'll see there are a lot of great offers out there right now. You could, for example, sign up for the Quontic CD providing a rate of 4.30% as of June 20, 2024 with just a minimum $500 deposit. If you signed up today, you'll be guaranteed to receive that rate until 2029.
This isn't the case if you get a high-yield savings account. While the awesome SoFi Checking and Savings (member FDIC) is paying an annual percentage yield of up to 4.60%² as of June 20, 2024, that rate is variable. If interest rates start to decline across the board, its rate could, too. It's also not the case if you buy a 12-month CD or a 3-month CD or a 6-month CD, all of which would guarantee you can earn today's rates for a much shorter period of time.
It's very likely interest rates are going to fall in the coming years, as the U.S. central bank (the Federal Reserve) has indicated it's looking to cut rates this year and next year as long as inflation comes under control. If you have your rate locked in until 2029, you won't need to worry about earning a lower return or not being able to get a CD again at such a competitive rate.
How can you take advantage of today's great rates
Passing up the chance to get a five-year commitment from a bank to pay you upward of 4.00% interest would be a foolish mistake -- as long as you have money you can tie up for five years. You should absolutely consider signing up for a 5-year CD if that's the case.
If you also want to benefit from the great rates short-term CDs are offering, you can buy some of those, too. In fact, building a CD ladder is a great idea right now. It involves buying different CDs that mature at different times -- you could open a 1-year, 2-year, 3-year, 4-year, and 5-year CD. Creating a ladder could give you the best of both worlds -- a locked-in rate for years and short-term CDs at the highest rates available now.
If you don't have the money to build a ladder, though, give 5-year CDs a closer look. And seriously think about whether you want the chance to keep today's rates for years to come. In a few years when you're still earning great returns and others who opted for short-term CDs aren't, you'll be glad you took this approach.
Our Research Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
SoFi disclosure:
² SoFi members with Direct Deposit or $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either Direct Deposit or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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