Five Year Certificates of Deposit (CD) are generally the longest term CD that most banks will offer. They tend to offer the highest rates but require the longest commitment. Five year CDs are especially popular in a declining interest rate environment as depositors can lock money in at the highest rate possible for the longest period of time. They are also popular with depositors who are willing to lock up money for five years in return for extra yield. Online banks often offer Five Year CDs that are above the average national rate.
December 5, 2016
5 Year CD National Average: 1.15% ?
|APY||Vs. Nat'l Av.||MIN|
|Navy Federal Credit Union||1.90%||1.66x||$100,000||
|Sallie Mae Bank||1.80%||1.57x||$2,500||Reviews|
|Colorado Federal Savings Bank||1.80%||1.57x||$5,000||
|American Express Bank, FSB||1.70%||1.48x||$0||Reviews|
|Ally Bank||1.70%||1.48x||$5,000||Reviews (1)|
|My Savings Direct||1.65%||1.44x||$1,000||Reviews|
|Pentagon Federal Credit Union||1.61%||1.40x||$1,000||Reviews|
|Bank of Internet||1.50%||1.31x||$1,000||Reviews|
|USAA Federal Savings Bank||1.11%||0.97x||$175,000||Reviews|
|New Dominion Direct||0.50%||0.44x||$1,000||Reviews|
Online banks offer many different CD terms of which the five year CD is generally the longest. Five year CDs provide the highest yield of the common CD terms but in return, savers must keep the money locked in the bank for an extended period of time. While individuals can withdraw the money (termed "breaking the CD") high penalties usually make this undesirable. At times, some five year CDs offer rates that are high enough to make up for the break penalty, and in these cases savers can earn a positive return even if they break the CD in the third or fourth year. These cases are rare though and savers are advised to plan to keep their money in the CD for the full term.
Five year CDs shown from banks on BestCashCow are all insured up to $250,000 per individual per institution by the FDIC. Deposits over that amount may be lost should there be a bank failure and savers are advised to keep their money within FDIC limits. The FDIC provides a tool to help you determine if your deposits are covered.
The biggest risk of a five year FDIC insured CD is that soon after depositing the money, interest rates and inflation will begin to rise. This can often happen in a rising rate environment and savers are advised to be way of investing in a five year CD if interest rates and inflation seem poised to go up. Unlike with bonds, the face value of a CD does not change with increases in interest rates, but no one wants to deposit money into a CD at 2.00% for five year only to have rates rise to 4.00% a year later.
In general, avoid investing in long-term CD at the start of economic recoveries following a recession.
The time to invest in five year CDs is when the economy is doing well and interest rates are high or if the economy seems to be entering a period of slower growth, or a recession. The post 2008 financial crisis period would have been a perfect time to lock in a five year CD rate.
Because it is very difficult to predict the start of a recession or the beginning of a recovery, some individuals prefer to create a CD ladder and five year CDs are an important part of a laddering strategy.
Five year CDs from online banks pay rates that are well above one year CDs and are comparable to five year CDs from branch banks. Five year CDs are the one term where the online banks do not pay much above online banks.
Opening a CD from an online bank has become easier over the past five years. Today, most online banks have an end-to-end online process that takes all depositor information. Savers opening an account should be comfortable providing their social security information online. Once the account has been opened, the rate is locked. Most online banks have an electronic funding mechanism in which an individual can transfer funds using an ACH transaction from their main checking account. Banks also allow funding to be done via check, wire, or credit card.
All banks listed on BestCashCow are FDIC insured; BestCashCow.com strongly recommends that you stay within FDIC insurance limits and that if you are unsure of how the limits affect you, you visit the FDIC website.
To understand all of the income generating options available to a saver, please view the Income Generating Investments Comparison Chart.
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