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See more of the top cd rates.
A Certificate of Deposit (CD) is a time deposit issued by a bank earning a specified interest rate over the period of time you select, based on available options. CDs are issued with varying maturities and rates by institutions such as state or national banks or state or federal savings and loan institutions. Certificates of Deposit require committing money to an account with a financial institution for a designated period of time and are FDIC insured. The best certificate of deposit rates are often available for sums as little as $500. While CDs are one of the bedrocks of the banking world, they come in many different sizes and shapes.
CD Terms
Certificates of deposit (CDs) come in various terms with the rate generally rising with the length of the cd term. As a result, a 5 year certificate of deposit will generally provide a higher rate than a 3 month cd.
3-month and 6-month certificates of deposit do not offer returns that dramatically exceed those in online savings and money market accounts, money market funds and auction rate securities. Moreover, investors in states with higher state tax, such as New York and California, will ordinarily perform equally well in a three-month US Treasury Bond after they account for the fact that interest produced on the Treasury is free of state and local taxes.
1-year certificates of deposit offer a significant yield premium over shorter term CDs and many other cash equivalents, and there are small incremental gains to 2-year and 3-year CDs. Again, investors in higher tax states may find that the actual premium in these securities over state and local tax-free agency bonds or US Treasuries is small or non-existent.
Longer term CDs usually pay the highest cd rates and allow investors to lock in a rate for an extended period of time. This is valuable in falling rate environments.
CD Laddering
Investors can also build CD Ladders, which allow investors to diversify their portfolio with a range of cd maturities. This provides investors with a steady stream of guaranteed income and reduces interest rate risk.
Foreign Currency CDs
Some banks have pushed CDs into the foreign currency realm. Investors can buy FDIC insured CDs in a foreign currency and benefit from any appreciation in that currency. If the currency depreciates agains the dollar though, the investor will lose by the corresponding amount. While the FDIC protects the CD from a bank failure, it does not protect the holder against a loss of principle due to currency changes.