Although some CDs are posting the industry’s highest rates in decades, it’s not the most your money can earn, especially with a longer-term lens.

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The average one-year certificate of deposit is paying just 1.28% APY, according to the FDIC. But thanks to rising interest rates, some financial institutions are offering far more — like four-times more. “Online-only banks and credit unions continue to raise interest rates on certificates of deposit, especially since the Federal Reserve raised the federal funds rate seven times in 2022,” Nerdwallet’s Spencer Tierney wrote in a recent report on historical CD rates. See the highest CD rates you may get now here.

Ted Rossman, a senior industry analyst with Bankrate, says that while other savings vehicles can also deliver competitive APY — such as high-yield savings accounts, some of which also are paying upwards of 4.5% — those interested in a short-term gain on a lump sum investment can earn more now than seen in recent years with high-yield CDs. “The advantage of CDs is that the rate is guaranteed,” Rossman says, adding that the best use-case for someone in the market for short-term CD is likely a “retiree looking for low risk with a set income.”

Why such high rates on CDs now? 

The Fed raised the funds rate yet again in February, amounting to a grand total of eight consecutive interest rate hikes since last March. Today, that number stands at 4.50%-4.75%.  For CDs, that change is significant — because the rising funds rate directly impacts overall borrowing costs, and financial institutions typically alter their rates to attract new deposits and remain competitive.

What’s more, the rising rate trend is expected to continue: Rossman says current market conditions and unemployment numbers — now at a 54-year low — suggest the Fed is likely not done raising rates this year, fueling the potential for further incentive to save. “It seems like the Fed will keep rates high or higher throughout the year, so there is a little room to go up,” Rossman says. 

CDs with the highest APY

The following banks and credit unions offer CDs and jumbo CDs of 5% APY or higher. Just be sure to read the fine print.

Mountain America Credit Union: 5.25% – 5.35% APY for 12-month CDs

Make the $500 minimum balance requirement for a 12-month CD and earn 5.25% APY. For youth accounts — designed for children and young adults — the rate is even more. For those, there is just a $5 minimum account opening and balance requirement to earn 5.35% APY. With that higher rate comes a few additional restrictions: the annual deposit limit is $10,000 through the age of 27 with a maximum of $100,000 per any one account. Early withdrawal penalties and fees here do apply.

SELCO Community Credit Union: 5.25% – 5.5% APY​ for 9-month CDs

Balance requirements are everything for the Accelerator series of CDs at SELCO. To qualify for the 5.25% APY rate attached to the 9-month Accelerator CD, you’ll need to maintain a balance of $25,000 to $99,999 in new funds. For an even higher rate of 5.5% with the credit union’s so-called Jumbo Accelerator CD, you’ll need an opening balance of $100,000 or more. If the rate on either CD increases within the first 30 days, SELCO will adjust to match.

Allin Credit Union: 5% – 5.05% APY on 60-month CDs

With a minimum deposit of just $1,000, the Allin Credit Union’s standard CD set offers a 5% fixed rate on 60-month certificates. The jumbo version, which requires a minimum deposit of $100,000, comes with an even higher 5.05% APY rate. 

Capital One: 5% APY for 11-month CDs

The 360 CD by Capital One is fairly cut-and-dry. Lock in by March 14 and guarantee 5% APY on the bank’s 11-month CD. There are no minimum balance requirements, and you have the option on when to cash out ​​monthly, annually or at the end of the term. 

BMO Harris: 5% APY for a 12-month CDs

Meet the $1,000 minimum deposit requirement and lock in your 5% APY on BMO’s 12-month CDs. The only catch here is this rate is not available to residents in  Arizona, Illinois, Indiana, Kansas, Minnesota, Missouri or Wisconsin.

Sallie Mae Bank: 5% APY on 27-month CD

All that’s needed here is the $1 minimum opening balance to start an account. Just be sure to keep your CD active for the full 27-month period, which will auto-renew at the end of the term, to avoid a 180-day simple interest early withdrawal penalty. 

UmbrellaBank.com: 5% on 12-month CD

There is a $1,000 account minimum required to open a 12-month CD with Umbrella Bank. If you’re new to the bank and you don’t plan on making deposits that exceed $1 million, this one might be for you. Just be sure you want to stick with this for the full term to avoid unwanted early withdrawal fees.

CFG Bank: 5% APY on 12-month CD 

Bring $500 to the table — in person at one of its Maryland-based branch locations or online — and maintain that balance to earn 5% APY with this CD from CFG Bank. No additional deposits are required to earn that competitive rate, however rates are subject to change, according to the fine print. 

Alternative options with better rates?

Although 5% is indeed a decade’s high return for CDs, it’s not the most your money can earn, especially with a longer-term lens, Rossman says. “If you’re a 25-year-old, you might be better served in the market,” he says.

Consider the return on a typical index fund, though admittedly returns here are not guaranteed. While the SPDR® S&P 500 ETF Trust (SPY), which tracks the S&P 500, generated a 1-year loss of 4.49% through Feb. 14, the index tracker also has gains of 8.65%, 10.77% and 12.56% over the 3-, 5- and 10-year periods, respectively, according to Morningstar data

Some high-yield savings accounts offer APY relatively similar to some of the highest earning CDs. Here are three offering some of the best rates today (Check out the full list here):

  • Varo Savings Account: 5% APY
    • Make the required $1,000 in electronic deposits for your paycheck, pension or government benefits from your employer or government agency, end the month with a positive balance in both a Varo bank account and savings account, and you’re eligible. But be sure to read the details: balances that don’t meet the requirements and those over $5,000 only earn 3% APY. 
  • Centier Bank, Connect Savings: 5% APY
    • Link your checking and savings account to qualify for this savings rate. Just be sure to make the minimum deposits and follow the steps in the fine print. 
  • MySavingsDirect MySavings Account: 4.35% APY
    • The rate offered here is still one of the highest on the market. Just fill out your online application and get started.

One of the key benefits with a high-yield savings account when compared to a CD, says MaxMyInterest CEO Gary Zimmerman, is the account holder’s ability for easy access. “In our experience, customers have almost always been better off keeping their funds in regular savings accounts with daily liquidity, rather than locking up their funds in CDs,” Zimmerman says, adding that “in a rising rate environment, you’re likely better off allowing your interest rate continue to rise as the Fed raises rates, rather than locking in your rate with a long-term CD.”

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Source: finance.yahoo.com