A certificate of deposit (CD) is a type of savings account that allows your money to earn interest for a certain amount of time. When that term ends, you'll get back your initial deposit plus interest. The national average CD rate is currently around 2.61% for a $10,000 deposit and one-year term—but it's possible to earn more, especially if you open a CD with a credit union or online bank. As of December 6, 2024, some are offering yields over 5%.
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Certificate of Deposit Rates
| National Average CD Rates by Term | |
|---|---|
| Term | Rate |
| 3-month | 1.52% |
| 6-month | 2.44% |
| 1-year | 2.59% |
| 18-month | 2.25% |
| 2-year | 2.17% |
| 3-year | 2.10% |
| 4-year | 1.87% |
| 5-year | 1.97% |
Source: Curinos LLC; $10,000 deposit amount
Annual percentage yields (APYs) are an important factor when looking for a CD. This number tells you exactly how much your money will earn. The higher the interest rate, the better the return.
Online banks and credit unions tend to offer the best CD rates—but there are exceptions, so it's always a good idea to shop around. Knowing what to expect can help you find a CD with a competitive rate. Here are national average CD rates based on financial institution type:
| National Average CD Rates by Institution Type | |
|---|---|
| Institution Type | Rate |
| Bank | 1.63% |
| Credit union | 3.32% |
| Online bank | 3.39% |
Source: Curinos LLC; $10,000 deposit amount, one-year term
APYs can also fluctuate depending on your deposit amount. In many cases, you may qualify for a better rate if you have a larger opening deposit. That's a good thing if you've got extra money to invest and a CD aligns with your financial goals. Below are national average CD rates based on deposit amount:
| National Average CD Rates by Deposit Amount | |
|---|---|
| Deposit Amount | Rate |
| $10,000 | 2.59% |
| $25,000 | 2.60% |
Source: Curinos LLC; one-year term
Where you live could also affect the interest rate you'll get on a CD. Across the United States, average APYs range anywhere from 1.91% to 3.36%. However, it's possible to find a competitive rate, regardless of your location. Here's a snapshot of average CD rates by state:
| Average CD Rate by State | |
|---|---|
| State | Average Rate |
| Alabama | 2.37% |
| Alaska | 3.36% |
| Arizona | 3.04% |
| Arkansas | 2.62% |
| California | 2.50% |
| Colorado | 2.76% |
| Connecticut | 2.68% |
| Delaware | 3.05% |
| District of Columbia | 3.11% |
| Florida | 2.13% |
| Georgia | 2.61% |
| Hawaii | 3.09% |
| Idaho | 3.02% |
| Illinois | 1.94% |
| Indiana | 2.12% |
| Iowa | 2.20% |
| Kansas | 2.60% |
| Kentucky | 2.18% |
| Louisiana | 2.71% |
| Maine | 2.85% |
| Maryland | 2.83% |
| Massachusetts | 2.44% |
| Michigan | 2.49% |
| Minnesota | 2.60% |
| Mississippi | 2.18% |
| Missouri | 2.08% |
| Montana | 2.96% |
| Nebraska | 2.69% |
| Nevada | 3.04% |
| New Hampshire | 2.69% |
| New Jersey | 2.49% |
| New Mexico | 2.83% |
| New York | 2.24% |
| North Carolina | 2.48% |
| North Dakota | 3.09% |
| Ohio | 1.91% |
| Oklahoma | 3.08% |
| Oregon | 2.62% |
| Pennsylvania | 2.29% |
| Rhode Island | 3.05% |
| South Carolina | 2.57% |
| South Dakota | 3.02% |
| Tennessee | 2.42% |
| Texas | 2.86% |
| Utah | 3.25% |
| Vermont | 2.83% |
| Virginia | 2.79% |
| Washington | 2.86% |
| West Virginia | 2.56% |
| Wisconsin | 2.40% |
| Wyoming | 3.11% |
Source: Curinos LLC; $10,000 deposit amount, one-year term
Is Now a Good Time to Get a CD?
CD rates move up and down and can vary by term length, deposit amount and financial institution. APYs are largely affected by the federal funds rate, which is a benchmark rate set by the Federal Reserve. This is the rate banks pay to borrow money from each other. When it changes, financial institutions usually adjust the rates they offer on CDs and savings accounts. (The same goes for rates they charge on credit cards and loans.) When the federal funds rate goes up, CD rates typically do the same, and vice versa.
Interest rates plummeted during the pandemic, but steadily moved upward in the years that followed. Inflation had a lot to do with it: Higher rates increase the cost of borrowing, which can help cool inflation. This was a silver lining for folks who invested in CDs. And for a long stretch, the Fed rate was 5.33%. But the Federal Reserve recently slashed that rate by half a percentage point.
CD rates will likely drop in response, especially if more rate cuts are on the horizon. There are rumors that might be the case, but we won't know until it happens. In light of that, you might decide that now is the best time to lock in current CD rates.
Learn more >> Are CDs Worth It?
How Much Interest Will I Earn With a CD?
The amount of interest you earn will depend on:
- The APY offered by your financial institution
- The amount you deposit
- Your CD term
Let's say you decide to put $10,000 into a CD at today's rates. Here's how much interest you might earn:
| Earnings on a $10,000 CD by Term | |||
|---|---|---|---|
| CD Term | Interest Earned on 1.7% CD | Interest Earned on 4% CD | Interest Earned on 4.5% CD |
| 3-month | $42.23 | $98.53 | $110.65 |
| 6-month | $84.64 | $198.04 | $222.52 |
| 12-month | $170.00 | $400.00 | $450.00 |
| 2-year | $342.89 | $816.00 | $920.25 |
| 5-year | $879.40 | $2,166.53 | $2,461.82 |
In many cases, the longer the term, the more interest you'll earn—but that isn't always true. For example, some financial institutions may reserve their best rates for six-month CDs or those who open a jumbo CD with an extra-large deposit. This is why it's always important to compare CD rates and terms because no two CDs are alike.
Types of CDs
There are several different types of CDs out there. Understanding how they're alike and different can help you decide which one might be right for you. Below are some popular kinds of CDs:
- Traditional CD: With a traditional CD, you'll likely have a set term and fixed interest rate. After making an initial deposit, your money will earn interest until the account matures. You typically can't deposit more—and your money is locked into the CD until the term ends. Tapping your funds early will likely result in an early withdrawal penalty.
- No-penalty CD: These CDs, which are sometimes called liquid CDs, allow you to withdraw money early without being penalized. That can be a nice benefit, but traditional CDs usually offer better APYs.
- Bump-up CD: With this type of CD, you can request an interest rate increase. You can usually take advantage of this perk just once during your CD's term—and it can come in handy if rates increase after you're locked into your CD. However, initial APYs usually lag behind traditional CDs.
- Step-up CD: This is similar to a bump-up CD, but instead of requesting a one-time increase, the rate will automatically go up at predetermined intervals. Step-up CDs usually start at a lower rate than a traditional CD, and the APY may be variable. That could be a benefit or a drawback, depending on interest rate trends.
- IRA CD: IRA CDs are held in individual retirement accounts (IRAs). That can allow you to take advantage of high interest rates and certain tax benefits. Traditional IRAs, for example, offer tax-deferred growth. That means you won't owe taxes until you make withdrawals in retirement. One downside of an IRA CD is that you could face hefty early withdrawal penalties if you pull out your money before the term ends.
- Brokered CD: You can only purchase brokered CDs from a broker or brokerage firm. That could get you a higher rate. It's also possible to hold several CDs within one brokerage account. Another benefit is that you might be able to tap your funds ahead of the maturity date without paying a fee. However, many brokered CDs are callable. That means the issuer could end the term early if they want to.
- Jumbo CD: These typically offer a high interest rate, but be prepared to make a large opening deposit. Most jumbo CDs require at least $100,000 to get started. The upside is that money could earn a lot of interest during the CD term.
Learn more >> How to Choose the Best CD Account
Pros and Cons of CDs
In addition to their benefits, CDs have certain drawbacks to consider before opening an account.
| Pros of CDs | Cons of CDs |
|---|---|
| CDs from banks are usually FDIC-insured for up to $250,000 per depositor, per account ownership category. You can expect similar protection from credit unions. | Some CDs require $500 to $2,500 or more to open the account. This isn't always the case, but you may need a larger deposit to secure the best rate. |
| The APY and term length are known from the get-go, which leaves little room for surprises. | High-risk investments like stocks have historically offered better long-term returns. Since its inception, the S&P 500 has had an average annualized return of about 10%. |
| APYs on CDs are typically much higher than what you'd earn with a traditional savings account. | Most CDs will charge a fee if you take your money out before the account matures. The fee could be as high as 540 days' worth of interest. |
| CDs can help diversify your investments and offset risk in your portfolio. | If your money is locked into a CD, you could miss out on interest rate increases. |
Who Should Get a CD?
Whether a CD is right for you will depend on several factors, including:
- Your financial situation: If you're building an emergency fund or paying down high-interest debt, you're likely better off putting extra income toward those goals.
- Your timeline: If you're OK with giving up access to your money for a predetermined amount of time, you could secure steady returns with a CD.
- Your investment portfolio: Holding a variety of different assets is important for spreading out investment risk. In this way, adding CDs to the mix could help balance your portfolio.
- Current interest rates: If you're able to find a competitive interest rate, it could put some muscle behind your savings—especially if you expect rates to drop soon. Pay attention to interest rate trends and look at CDs from different financial institutions.
How to Choose the Best CD
- Compare APYs. Rates can vary from one financial institution to the next. Shop around and compare rates from traditional banks, credit unions and online banks to determine where your money will earn the most interest.
- Consider minimum deposit requirements. If you have a large chunk of money to invest, you might be able to secure a higher interest rate. If not, don't stress. Many CDs don't require a minimum opening deposit. Again, shopping around is key.
- Look at term lengths. How long are you willing to part with your money? It's an important question since early withdrawal penalties could eat into your earnings. Decide on a term range that works for you, then compare rates to find the best CD.
- Clarify early withdrawal penalties. Before opening a CD, read the fine print to clarify the early withdrawal penalty. It's a good thing to know, especially if you're hit with a financial surprise and need to access that money. It's another reason to build a strong emergency fund.
- Know your options when the term ends. Clarify what will happen when the account matures. You'll likely have a short amount of time to add more money to your CD or take your cash elsewhere. FYI, some CDs will automatically renew if you don't make a decision within seven to 10 days.
Learn more >> Can You Lose Money With a CD?
What Is a CD Ladder?
A CD ladder is when you open multiple CDs of varying term lengths, and it's a strategy that could help your money go even further. Spreading them out can provide an ongoing source of income because you'll unlock a chunk of cash as each one matures. When that happens, you can either reinvest that money or put it toward your financial goals. Let's say you invest:
- $1,000 in a one-year CD at 3.8%
- $3,000 in a six-month CD at 4.5%
- $1,000 in an 18-month CD at 4%
When all is said and done, you'll earn more than $165 in interest. You could earn even more over time if you continue CD laddering.
Alternatives to CDs
If you decide that a CD isn't the best option for you, you can consider one of these alternatives:
| Money Market Account | High-Yield Savings Account | Investment Account | |
|---|---|---|---|
| Current average APY | 0.96%* | 1.81%* | N/A |
| FDIC or NCUA Insurance? | Yes | Yes | No, but brokerage accounts that hold cash and other securities are insured by the Securities Investor Protection Corporation (SIPC) |
| Easy access to funds? | Yes | Yes | Yes |
| Fees | Yes, potential minimum balance requirements, overdraft fees and inactivity fees | Yes, potential minimum balance requirements, overdraft fees and inactivity fees | Yes, potential fees for buying and selling securities and account maintenance fees |
*Source: Curinos LLC as of December 6, 2024; MMA with a $2,500 deposit
Frequently Asked Questions
CDs are considered low-risk, stable investments. These accounts are typically insured, whether you open a CD through a bank or a credit union. Just be aware that brokered CDs might be different, so be sure to confirm with your brokerage if your deposit is insured by the FDIC. If not, you might consider adjusting your CD strategy, depending on your risk tolerance.
CD rates are heavily influenced by the federal funds rate. When the Federal Reserve moves this rate up or down, APYs on CDs and savings accounts usually do the same. Annual percentage rates (APRs) on credit cards and loans also tend to move in the same direction. You can be strategic by locking in a CD before an anticipated rate decrease.
When a CD term ends, you can take your money and:
- Spend it as you see fit
- Put it toward a financial goal
- Reinvest it in a new CD
- Renew your current CD (and add more funds to it if you want to)
- Put your cash into a different investment
Keep in mind that you'll likely have a short amount of time to make a decision—usually seven to 10 days. Some CDs will automatically renew at that point.
When you file your tax return, the IRS will want to know about all your sources of income. That includes interest earned from CDs and savings accounts. Your financial institution should send you Form 1099-INT, which shows your total interest earned for a given tax year. You can use this information when preparing your annual tax return.
The Bottom Line
CD rates are constantly in flux—and they can vary widely depending on the financial institution, deposit amount and term length. Keeping an eye on rate trends, and shopping around, can go a long way if you're looking to open a CD. Just make sure you understand any fees that may apply. That includes early withdrawal penalties. If you decide that a CD makes sense for you, consider a CD ladder to maximize your returns.