Interest rates for certificates of deposit (CDs) have climbed significantly this year, with at least one credit union now offering more than a 7% annual percentage yield (APY). But it’s essential to look beyond the higher deposit rates — and read what’s behind these promotions. (Indeed, that 7% APY is only available to a very small population, and has a maximum deposit of just $7,000.)
Indeed, many of these eye-popping offers are only available to people living in select locales, have deposit minimums or maximums, and require you to lock up your money for a time period that may not work for you. Sometimes it’s better simply to go with a CD with a good rate (plenty of CDs are paying about 5%, and you can see some of the best CD rates you may get now here) that doesn’t require you to jump through too many hoops.
Here’s what to know on the highest-paying CDs, as well as what’s causing CD rates to rise and how to pick a CD.
What’s making CD rates go up?
If there is one thing that is certain about CDs in 2023, it’s that their rates have steadily risen to levels not seen in decades. In the past year, rates for CDs with 12-month maturity dates have swelled to an average 1.76% APY as of Aug. 21, according to the latest data from the Federal Deposit Insurance Corporation (FDIC). Just one year ago, CDs with the same term had an average deposit rate of 0.46% APY. For some financial institutions, though, the competition has driven these rates to as much as four times the industry average.
“The Federal Reserve raised interest rates at the quickest pace since the early 1980s in an effort to fight inflation and bring inflation back to the Federal Reserve’s long-term target of 2%,” says Joshua Mersberger, Merit Financial Advisors’ regional director and partner in Wisconsin. He adds: “Due to the rapid increase in interest rates, banks have been forced to increase interest rates on CDs to compete with the increase on the rate of return on U.S. government bonds.”
What’s more, as the benchmark funds rate goes up, it’s more costly for financial institutions to pay off their own debt, so they raise interest rates on various savings products — high-yield savings accounts, checking accounts, money-market funds and CDs, to name a few — in order to attract new customers. This not only raises cash to pay down these growing balances, but the promotional offers — often from typically smaller, online-only banks and credit unions — can often rake in enough depositors to help balance their books in the process. See some of the best CD rates you may get now here.
Key tips for finding the best CD
It’s key to focus on the fine print and determine if the promotional offer is aligned with your goals, explains Jordan Gilberti, senior leader planner at Facet. “If this is your emergency fund, for example, a CD may not be suitable since it’s much less liquid than a traditional savings account and comes with restrictions,” Gilberti says, adding that “if you might need immediate access to these funds, a savings account may be a better choice.” (See some of the best savings account rates you may get now here.)
Indeed, if your goals change and you need your money prior to the previously determined maturity date, CDs come with penalties that can chip away at any possible earned interest. Depositors also need to qualify for often restricting balance requirements, some of which may limit how much you can earn.
That’s because while some accounts require as much as $100,000 to get started, others also limit the amount of interest that can be generated from what’s promised in the promoted rate. So by chasing what may seem to be the best APY, neglecting to review all of the fine print can lead depositors to CDs with lower interest-earning potential, says NerdWallet personal finance expert Elizabeth Ayoola.
“Investors also want to ensure they’re getting the most competitive interest rate by shopping around,” Ayoola explains. “Evaluate the risk before locking in your money, especially when there’s an inverted yield curve — when short-term CDs provide better returns than long-term CDs.”
10 of the best CD rates of September 2023
Here are 10 of the best deposit rates for September 2023, all of which are insured up to $250,000 by either the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA), unless otherwise noted. Just be sure to read the fine print as all of these offers come with early withdrawal penalties and balance requirements that may restrict access.
Alpena Alcona Area Credit Union: 7.19% APY for a 7-month CD
Not everyone will qualify for this industry-leading offer from Alpena Alcona Area Credit Union. That’s because depositors here must either live, work, own property, attend school or worship in the state of Michigan to open an account. For those who fit that narrow description, they may stand to earn 7.19% APY for a 7-month CD. That said, new account holders must make a minimum deposit of $500 to get started. But what’s most limiting here is the maximum balance restriction of just $7,000. If that sounds like a match, just note that like with most CDs, there are early withdrawal penalties for taking out your money ahead of the maturity date.
Local Government Federal Credit Union: 6.5% APY for a 6-month share term certificate
Like with most credit unions, membership is required to access the rate attached to the 6-month share certificate offered at Raleigh-North Carolina-based Local Government Federal Credit Union. In this case, depositors or their family members must be an employee or volunteer of North Carolina’s local government, including both elected and appointed officials. But unlike some competitors, this account comes with a highly accessible $250 minimum balance requirement and does not restrict its customers with a maximum deposit limit. That said, LGFCU is insured by the National Credit Union Association, or NCUA, for up to $250,000, so anything above that limit is not protected in the event of closure or failure.
One American Bank: 5.85% APY for a 170-day CD
For a more accessible option than those at credit unions with strict membership requirements, this 170-day CD promotional offer at One American Bank comes with a high 5.85% APY. And while you don’t need to become a member, you will need at least $100,000 to get started.
Finworth: 5.80% APY for a 15-month CD
No membership requirements are needed here either. Just make the minimum deposit requirement of $50,000 for this 15-month CD and earn one of the best rates on the market today. Also, be sure to stick with this one through the full term to avoid an early withdrawal penalty.
Connexus Credit Union: 5.76% for a 12-month jumbo certificate
To become a member of this credit union, you must either live in, or be an employee, retiree, family member, student or alumni of a select group of businesses and organizations in one of a number of counties in the states of Illinois, Minnesota, Ohio and Wisconsin. Members also must make a one-time $5 donation to open an account. If you’re able to pass that screening and become a member, this 12-month jumbo certificate at 5.76% APY can be all yours. That said, you will need to make a minimum $100,000 deposit to open an account. Like with most CDs, early withdrawals will result in a penalty.
Sun East Federal Credit Union: 5.75% APY for an 11-month high-yield share certificate
Not everyone will qualify for this 11-month high-yield certificate at Sun East FCU. For starters, depositors here will need a minimum of $100,000 of new money to the credit union to get started. Also like with most credit unions, depositors have to become a member to qualify — that means either living in, or working for one of a dozen qualifying employers in the Greater Brandywine Valley — that includes various counties in Delaware, Pennsylvania, Maryland and New Jersey. You can also join if a family member is already part of the credit union. Find out here if you qualify. Accounts here also insured up to $500,000 by the NCUA, as well as by licensed property and casualty insurer Excess Share Insurance, or ESI. Penalties for early withdrawals will also apply.
Abound Credit Union: 5.75% for a 10-month certificate
Members of this credit union can earn a high 5.75% APY on this 10-month CD with a $500 deposit minimum for both consumer and business accounts. To join, members must live, work, worship or attend school in a select set of areas in the state of Kentucky. If you qualify, it should also be noted that dividends here compound and pay quarterly, but can also be paid monthly for consumer accounts with balances above $10,000.
MapleMark Bank: 5.75% for a 12-month CD
This relatively high 5.75% APY rate is for a 12-month CD at MapleMark Bank, but you must make the minimum $25,000 deposit and you’re set. There is no maximum balance here. That said, also like most CDs, there is an early withdrawal penalty for taking your money out prior to the maturity date.
TotalDirectBank: 5.65% APY for a 12-month CD
No membership requirements here. Just make the $25,000 minimum deposit by ACH and you’re set. You are also limited to $1 million per CD and must stick with this one through the full term or risk an early withdrawal penalty.
RTP Federal Credit Union: 5.65% APY for a 9-month CD
There is a relatively accessible $2,500 deposit minimum for this limited offer from RTP Federal Credit Union. Like with most credit unions, however, membership requirements apply. For RTP, you must work for one of 300 businesses and associations in the RTP and greater Triangle Park, North Carolina area. You may also join if a family or household member is already a member.
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