A certificate of deposit (CD) is a savings tool offered by banks and credit unions that allows you to earn a fixed interest rate over a specified period. In this article, I will share the pros and cons of opening a CD and where you can find the best rates.
A generally safe investment
Like traditional checking and savings accounts, CDs are insured by the Federal Deposit Insurance Corporation (FDIC). This means that even if your bank failed – like the recent Silicon Valley Bank – your deposited principal amount would be protected up to the FDIC insurance limit.
Higher interest rates than traditional savings
One of the benefits of a CD is that they almost always offer a higher interest rate than traditional savings accounts. According to the latest information published by the FDIC, the average national interest rate on a traditional savings account is 0.37%. In comparison, the average rate on a 3-month CD is 0.67%. Keep in mind though, that this is only the national average. There are many banks currently offering much higher rates for CDs. Keep reading to find out more.
Your money may be held up until the end of the CD term
Unlike traditional savings accounts that allow you to withdraw money up to 6 times a month, you may be unable to take money out of your CD. CDs typically have a fixed term from a few months to several years, and there may be penalties for early withdrawal before the term expires. Some banks offer No Penalty CDs, although these are at a lower rate.
Where to Find the Best CD Rates in April 2023
As of the date of this article, the following banks are offering above-average CD rates.
| Bank | Minimum Deposit | CD Term | APY |
| Ally Bank | None | 18 month | 4.80% |
| Ally Bank – No Penalty CD | None | 11 month | 4.25% |
| American Express National Bank | None | 12 month | 4.25% |
| Capital One | None | 12 month | 4.15% |
Summary
CDs are a great savings tool to add to your financial portfolio. They are a good alternative to savings strategies such as “envelope stuffing,” which requires you to keep cash in your home. Opening a CD is an easy way to save for short- or medium-term goals, such as a down payment on a home, a wedding, or a vacation. However, before putting your money into any CD, it is important to carefully review the interest rate, term, and potential penalties, before deciding which CD is best for you.
