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Up, up and away: As the Federal Reserve has raised interest rates to combat inflation, CD rates have reached—and surpassed—the 7% milestone. During the middle of last year, a credit union in Michigan was offering a CD with a 7.19% annual percentage yield (APY). While that offer is no longer available, similar offers aren’t far behind.
CD rates have been heating up all over. Several banks and credit unions are now offering APYs in the 5.00% to 6.00% range. But is there a catch? Is snagging the highest possible CD rate always your best move?
That depends on the restrictions and limits that may go along with the high rates. Even if 7% APYs come back, a certificate of deposit (CD) is not always the best place to keep your money.
“You have to understand the fine print because a CD is not the same thing as a savings account,” says Corbin Blackwell, a senior financial planner at Betterment, an investing and saving app. “You can’t take that money out [early] and, at the same time, get the full 7.00% rate.”
Annual percentage yields (APYs) are accurate as of March 27, 2024.
What Is a 7% Interest Rate on a CD?
The interest rate on a CD is often called the annual percentage yield, or “APY.” The APY is a way of showing how much you can expect to earn in interest over the course of a year from a certain savings account product. The interest rate and APY will often be slightly different, depending on how often interest is compounded.
With a 7% APY, you’re earning seven cents for every dollar in your account each year. That means if you deposit $1,000 into a one-year CD, you’ll earn $70 in interest
Calculating interest beyond the first year gets more complicated thanks to compound interest. For example, opening a two-year CD won’t just double your interest earnings. You’ll be earning interest on your interest, so in that second year, you’d earn $74.90 instead of $70. You can use a CD calculator to determine exactly how much you’ll earn on a 7% APY CD.
Can You Get a 7% CD Account?
There was a lot of excitement in August 2023 about a few credit unions offering 7% APYs on certificates. But those rates were offered for a limited time only and are no longer available.
However, the nation’s best CD rates are still well above 5%, with some pushing toward 6%.
Where Are the Best CD Rates?
Some of the hottest CD rates right now are at credit unions, where CDs are generally referred to as share certificates.
The CommunityWide Federal Credit Union CW Certificate Account currently offers a 5.15% APY on a 12-month share certificate, and theConnexus Credit Union Share Certificate has a 5.01% APY available on a 12-month term.
All of these rates are well above the national averages of 0.22% for a one-month CD and 1.81% for a 12-month CD as of April 2024, according to the Federal Deposit Insurance Corp.
Keep in mind that as credit unions, all of these institutions require you to become a member to open an account. Some credit unions make joining fairly easy for anyone, while others may require you to live or work in certain counties or be a member of certain organizations to join.
Related: 10 Best CD Rates
What To Know About Chasing the Highest CD Rate
A financial institution that offers an eye-popping rate is typically in need of more deposit dollars to fund loans.
Pro Tip
“What you’re seeing is, as banks and credit unions have less accessibility to liquidity to fund loans and other investments, they’re having to pay more for those deposits,” says Jill Castilla, president and CEO of Citizens Bank of Edmonds in Oklahoma.
But financial institutions don’t like to lose money, so they will often place limitations on the highest rate, such as a balance restriction or an early withdrawal penalty. And if the institution offering that high CD rate is a credit union, you’ll first have to qualify for membership before you can take advantage of the offer.
Here are five of the most common items to check in your CD fine print before handing over your money:
1. Check Balance Minimums or Maximums
Most CDs have a minimum balance, but some banks or credit unions also include a maximum amount, especially if they are paying high interest.
When Alpena Alcona Area Credit Union was offering a 7.19% APY CD, for example, it had a maximum balance of $7,000. Some banks and credit unions offer CDs with minimum balances starting around $100 to $300, but it’s more common to see minimums starting in the $500 to $1,000 range.
Related: How Much Money Should I Keep In A CD?
2. Be on the Lookout for Penalties
Most banks or credit unions will charge a penalty for withdrawing any funds before the CD term ends. This is especially the case if the APY is high. Withdrawing early will reduce your ability to get the full return.
3. Is It a Fixed or Adjustable Rate?
It’s important to find out whether there is a fixed rate for the life of the CD or whether the rate is adjustable, meaning it may change throughout the term based on market rates.
An adjustable-rate CD might start at, say, 4.00% APY when you sign on but then drop when market rates fall.
“See what the rate structure is … if it is an adjustable or variable rate, see if there is a ceiling that’s put in place,” says Blackwell. “Because that would restrict your ability to ride up rates,” and you’d be doing the bank “the favor to be able to reduce your rate.”
Related: CD Calculator
4. Check Whether the Offer Is Limited to Certain Customers Only
Sometimes a financial institution offers a higher rate to attract new customers. To earn the promotional rate, you must often make a “new deposit,” which may be defined as money that has been “transferred (not pending) from another financial institution” within a week before opening the CD.
This rate helps bring in new deposits, which can help the institution make more loans, while the limitations prevent existing customers from simply moving around funds.
You should also check whether you qualify to join the credit union offering that attractive CD rate. Credit union applicants generally must fit certain requirements, such as living in the geographic area where the credit union has branches or having a certain type of job, such as being a teacher, medical professional or member of the military.
5. Make Sure the CD Is Federally Insured in the Event of Failure
It’s critical to make sure the money you stash in a CD has deposit insurance from a federal agency. That way, even if your institution fails, your money will be safe.
Banks are insured through the Federal Deposit Insurance Corp., while credit unions get insurance through the National Credit Union Administration. The insurance covers up to $250,000 per account.
Typically, the institution will display its federal insurer on its website and at its branches. But you can also verify whether it’s covered by looking up the institution’s name on the federal regulator’s website.
Find The Best CD Rates Of 2024
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Other High-Yield Options To Consider
If you’re looking to earn more money on your savings, CDs are not the only game in town. With the recent rise in interest rates, banks and credit unions are offering competitive APYs on a variety of savings products.
Pro Tip
The best high-yield savings accounts and money market accounts might give you a higher APY than a CD. While they won’t come with a fixed interest rate, they will let you take out money without having to worry about early withdrawal penalties.
High-Yield Savings Accounts
Rising interest rates have been good for savers. The best high-yield savings accounts are offering interest rates of up to 5.00% APY, and it’s becoming more common for online banks and conventional banks to offer 5% interest savings accounts. These are much higher rates than the national average, according to the FDIC.
It’s rare for banks and credit unions to offer 7% interest savings accounts, but it does happen. If interest rates continue to go up, earning 7% APY on a savings account might become a reality. During the 1980s, when interest rates were even higher than they are today, savings account rates reached 8%.
Money Market Accounts
Money market accounts are another option for earning higher yields on your savings. These accounts give you the usual advantages of a savings account, while also offering some extra flexibility for how to access your money—some money market accounts let you write checks or make debit card transactions.
The best money market accounts are offering yields of up to 5.30% APY or more with no minimum balance requirements. This is significantly higher than the national average money market account rate, according to FDIC data.
Frequently Asked Questions (FAQs)
What banks are offering 7% interest on CDs?
Currently, no U.S. banks or credit unions are offering 7% APY on CDs. During August 2023, a few credit unions were offering 7% interest on CDs, but those were limited-time offers that are no longer available.
Is there a CD that pays 5%?
A number of banks and credit unions are offering CDs with APYs of 5% or higher. Bread Savings, CommunityWide Federal Credit Union and TotalDirectBank all offer CDs with a 5.00% APY or higher.
Can you get 6% on a CD?
There are currently no banks or credit unions offering a 6% CD, although there are some offering CDs with rates near or at 5.50% APY.
