By taking advantage of the generous APYs offered on top-yielding CD accounts, you could grow your savings with almost zero risk. Savings rates on CDs have risen substantially since last year, following the Federal Reserve’s effort to lower inflation through several interest rate hikes. As interest rates rose, many banks began offering even more competitive yields on savings accounts. However, now that the Fed's rate hiking campaign is over, the boon to CD rates is coming to an end.
As expected, the Federal Reserve held interest rates steady for the fourth consecutive time at the most-recent policy-setting meeting in January. This pause in rate hikes means the federal funds rate will remain at a target range of 5.25% to 5.5%, the highest it’s been in 22 years.
Since March 2022, the Fed has raised interest rates 11 times in an attempt to combat high inflation. However, in the official press release, the Fed removed its previous reference to additional rate increases, instead taking a more neutral stance regarding "adjustments" to the federal funds rate. In December, the Federal Reserve saw three interest rate cuts in 2024, and lowered its median interest-rate projection for the end of 2024 to 4.6%.
Since the Federal Reserve decided to hold interest rates steady, savings rates have started to fall. And if the Federal Reserve cuts interest rates later this spring, as expected, savings rates will likely drop even further. Therefore, its a good idea to take advantage of savings rates while they remain high.
Currently, many of the top-yielding accounts for 1-year CDs, 3-year CDs and 5-year CDs have rates well over 4%. So, if you’re saving for an upcoming purchase, or just looking for a fixed and safe return on your cash, opening a 3-year CD account could be a smart option. Just make sure you won’t need access to your money before its maturity date.
Best 3-year CD accounts
Try our tool, in partnership with Bankrate, that allows you to shop around for CD rates available today.
Transportation Federal Credit Union
APY: 5.00%
Minimum Balance: $1,000
DollarSavingsDirect
APY: 5.00%
Minimum Balance: $1,000
Hughes Federal Credit Union
APY: 4.86%
Minimum Balance: $1,000
Luana Savings Bank
APY: 4.81%
Minimum Balance: $2,000
First Internet Bank
APY: 4.76%
Minimum Balance: $1,000
Skyla Credit Union
APY: 4.70%
Minimum Balance: $500
Seattle Bank
APY: 4.65%
Minimum Balance: $1,000
What is a CD account?
With a CD account, your cash is locked away for a fixed period of time of typically 1-5 years, unless you’re prepared to pay a fee to take it out early.
Because of those fees, they aren’t good options for cash you plan on spending in the coming months, so they don’t make good emergency funds. They are good options, however, if you’re trying to save for a future purchase or event and want to grow your cash without accessing it.
You’re guaranteed a fixed return on your cash, so the rate won’t go up or down based on market conditions which is both a good thing as you get certainty, but also a possible problem in case rates elsewhere shoot up and you don’t benefit.
Like other savings accounts, they are a good option for those who value risk-free returns as you aren’t riding the waves of the stock market. In addition, most CD accounts are FDIC or NCUA insured, depending on whether they’re opened through a bank or credit union, so your cash is safe even if your bank or credit union closes. FDIC insurance protects up to $250,000 per account ($250,000 per person in a joint account), while NCUA insurance protects up to $250,000 per credit union member.
1-year vs 3-year vs 5-year CD accounts
Given your money is essentially locked away (unless you pay fees to get it out early), you need to carefully consider how long to tie your cash up for between the various types of CD options.
For example, if you plan on purchasing a vehicle in around 3 years, opting for a 3-year CD can help you bolster your savings for when the time comes. It’s a “set it and forget it” type of investment. Your cash will grow thanks to compound interest with little effort on your part.
In that scenario, a 5-year CD account is risky as you may need to pay a fee to get your money out after, say three years.
You can use our savings calculator to see how much you’ll earn on your cash over time if you opt for a 3-year CD account.
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