A certificate of deposit (CD) account offers multiple advantages for savers in today’s economic environment. A fixed interest rate that’s higher than many alternatives is one of them. But not all CD accounts will come with the same rate and savers should expect to see a noticeable difference in what they’re offered at their local branch and what they can otherwise secure by using an online institution. Since the latter doesn’t have the same maintenance costs the former does, it can use those savings to offer better rates to account holders. Which bank you use, however, is only one factor determining the rate you can lock in. The account term, or length, is another critical one to understand.
CD terms can be as short as three months or as long as 10 years. Historically, rates (and, thus, returns) were higher on long-term accounts (those that mature in 18 months or longer). That dynamic then shifted in the volatile interest rate climate of recent years, in which banks often offered higher rates on short-term CDs. Is that still the case, however? With the high likelihood of an interest rate hike from the Federal Reserve later this month, borrowers who have yet to take advantage of a CD should start by understanding which specific CD terms are currently offering the best rates and returns.
See how much interest you can be earning with a CD account here.
Which CD terms offer the best rates and returns this September?
Most CD rates sit around 4% this September, but there’s a noticeable difference between 3.90% and 4.35%, both on paper and in what your ultimate return will look like when the account matures. Here are the four terms offering the highest rates this September:
- 18-month CD at 4.35%
- 2-year CD at 4.35%
- 3-year CD at 4.50%
- 5-year CD at 4.40%
And here are four accounts with lower rates to consider currently:
- 3-month CD at 3.95%
- 6-month CD at 4.20%
- 9-month CD at 4.10%
- 1-year CD at 4.30%
While it will be tempting to pursue the highest rate on this list, the reality is that if you won’t be able to see the account through to its maturity date, it won’t be worth opening. With early withdrawal penalties worth most or all of the interest earned on the account up to the point of withdrawal, it’s critical that you only deposit an amount that you can keep frozen in the account through the maturity date.
In other words, the 4.30% on the 1-year CD may be better for you than the 4.35% on the 2-year option, even if the latter technically has the higher rate and the slightly better return.
Compare the best CD rates available to you here now.
Other accounts to consider
What about those savers who don’t want to lock their money away at all? There are two alternative savings accounts for these savers to consider. High-yield savings and money market accounts both have competitive rates now, albeit both are a bit lower than the top CD accounts outlined above. The rates tied to both are also variable, meaning that they will rise or fall based on market conditions.
That said, the access to your funds with either account won’t be restricted the way it would be with a CD, so it could be a viable option for those who want to take advantage of today’s higher interest rate climate without sacrificing access to their money.
The bottom line
The best CD rates and, thus, most lucrative returns, are all aligned with long-term CDs this September. And while a 4.40% or 4.50% CD interest rate should never be discounted, savers should also evaluate their short-term account options, too, to see which fits in their savings strategy best. They should also evaluate their high-yield savings and money market account alternatives, neither of which will restrict access, which can be critical for many in today’s unique economic landscape.
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