Three Years Ago, A 5-Year CD Made a Lot of Sense at 2.35%; Now Maybe Not

Three Years Ago, A 5-Year CD Made a Lot of Sense at 2.35%; Now Maybe Not

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Three years ago, the best online 5-year CDs were at or around 2.30% - 2.35%. At the time, I put a fair amount of my personal money in 5-Year CDs, and I recommended that readers of BestCashCow to continue doing the same.

I obviously regret not having put the money in Facebook or Netflix or Amazon! But, these CDs have given me safety for savings accounts and a return on cash well above that offered by any savings accounts for the last three years. To boot, at no time in the interim has it been possible to buy a 5-year CD at that rate. (In early 2016, the best 5-year CD rates briefly reached 2.25%, but for most of the last year-and-a-half, 5-year rates were below 2%).

Now, the best 5-year rates are back to 2.35%. Synchrony and Sallie Mae are both established online banks offering this rate and it seems tantalizing in light of where rates have been.

But, savings rates are normalizing quickly (see the best rates here). 2-year CD rates and 3-year CD rates offer returns close to the 5-year CD without the time commitment. I would be inclined to hold on the 5-year and stay in savings for now. Given the Fed’s continued tendency to raise interest rates over the next 12 to 15 months, I think we may see 5-year CD rates above 3% before Janet Yellin hands over the reigns of the Fed to Gary Cohn. In fact, the Federal Reserve continues to guide towards a Fed Funds rate at or above 3% in 2019 in which case savings rates and short-term CD rates will be at that level in less than 2 years.

Many other commentators will argue that you should jump on the 5-year CD at this point and pay the early withdrawal fee in a year if rates go up. We aren’t inclined to recommend this strategy here either. While Synchrony has an early withdrawal penalty of only 1-year’s interest and Sallie’s is 6-month’s interest, it is important to note generally that banks retain the right to refuse to allow early withdrawals ( Therefore, BestCashCow would not recommend general investment or savings strategies relying on early withdrawals from CDs.

Before investing in any CD, we highly recommend that you read our 65 questions to ask which is also available to download as an E-Book by clicking on the right column.

We also always recommend that you check rates at local banks and local credit unions before locking into online CDs; institiutions near you may offer better rates!

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to bank transparency and the climate crisis. Since co-founding BestCashCow in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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Today's Highest Online CD Rates

Bank Product Term Interest Rate (APY)
Finworth, a division of InsBank 1-Year 5.38% APY with $50,000 minimum
TotalDirect, a division of City National Bank of Florida 1-Year 5.35% APY with $25,000 minimum
First Internet Bank of Indiana 1-Year 5.31% APY with $1,000 minimum
Dollar Savings Direct, a division of Emigrant Bank 3-Year 5.00% APY with $1,000 minimum
First Internet Bank of Indiana 3-Year 4.66% APY with $1,000 minimum
IncredibleBank 3-Year 4.58% APY with $1,000 minimum
First Internet Bank of Indiana 5-Year 4.55% APY with $1,000 minimum
BMO Alto, a division of Bank of Montreal Harris 5-Year 4.50% APY with no minimum
Department of Commerce 5-Year 4.34% APY with $500 minimum

See More Online CD Rates →

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