Certificates of deposit are safe vehicles for investors hoping to avoid taking on too much risk. If you keep your funds locked up in the bank for an entire term (such as three months or one year), you can expect to end up with your initial deposit plus interest.

A 12-month CD won’t pay the highest rates in the market. But when your account comes due, you’ll be able to move your funds into an account with a more attractive yield.

“(It’s) better to maintain a bias toward shorter maturities and have the flexibility to reinvest as interest rates rise,” says Greg McBride, CFA, Bankrate chief financial analyst.

Calculate how much interest you can earn using Bankrate’s calculator, and use that information to compare offers to see what works best for you.

1-year CD FAQs

What is a 1-year CD?

Having a 1-year CD means that your savings will be tied up for 12 months. Generally, you won’t be able to access your funds during that period of time (unless you don’t mind getting hit with an early withdrawal penalty). In exchange, you’ll earn a higher yield than you would from a standard savings account or money market account.

If you’re not planning to touch your money for a year and you believe the benefits of a 1-year CD are more attractive than the yield associated with a liquid savings account, it’s a good time to get a 1-year CD. And if you’re constantly dipping into your savings, a 1-year CD could help you save more money.

Below are the top nationally available 1-year CD rates. The best options pay nearly three times the national average of 0.87 percent APY, according to Bankrate’s most recent national survey of banks and thrifts.

How CD rates work

Banks and credit unions set their own CD rates based on multiple factors, including inflation, and the rates set by competitors. Changes in treasury yields and Federal Reserve interest rate decisions are taken into account as well.

Some banks have a 10-day best rate guarantee, meaning you could end up with a better rate if the bank raises theirs within days of your decision to open and fund your account. But generally, once you open and fund a fixed-rate CD, you’re stuck with that rate until your term ends. Over time, the bank may raise or lower the advertised rate for new account holders, but your rate will remain the same.

If you do your research, you’ll find that some institutions offer bump-up or step-up CDs that allow rates to change either upon request or at certain intervals during the term. Rates for these CDs, however, tend to be lower than those tied to fixed-rate CDs.

When reviewing CD rates, pay close attention to the annual percentage yield (APY). This tells you how much interest you’ll earn within a year, depending on how frequently interest compounds. Calculate how much interest you’ll earn as you compare rates.

Right now, average CD rates remain at historic lows. However, if you shop around, you can find better deals than what’s offered by the primary bank managing your checking account. Researching rates at several local banks, as well as reputable online banks, will usually yield the best rate.

Can you lose money with a 1-year CD?

As long as you choose a 1-year CD with a fixed rate – and keep the funds in the CD for the duration of the term – you won’t lose money. If you withdraw before the term of the CD allows, you may be subject to an early withdrawal penalty.

Also, each depositor at an FDIC-insured bank is insured to at least $250,000 per FDIC-insured bank. According to FDIC.gov, no depositor has lost a single cent on FDIC-insured funds as a result of a bank failure. If you’re concerned about your FDIC insurance eligibility, you can use the FDIC’s Electronic Deposit Insurance Estimator.

The standard share insurance amount is $250,000 per share owner, per insured credit union, for each ownership category at NCUA institutions.

It’s also important to factor in inflation. If the rate of inflation is higher than your CD yield, your purchasing power goes down.

1-year CD vs. other investment accounts

Before you buy a 1-year CD, it’s important to find out how it stacks up against other types of investment vehicles. Read on to find out how 1-year CDs compare to more liquid accounts, like savings accounts and money market accounts.

1-year CD vs. savings account

CDs with terms lasting for one year often pay more interest than traditional savings accounts. Here’s why: You’re rewarded with a higher yield in exchange for agreeing to leave your money tied up for a set period of time.

What’s more, if you keep money locked up in a CD, it’s harder to access those savings. With a liquid savings account, there is usually no consequence for withdrawing funds (unless you make more than six withdrawals or transfers per statement cycle). Since your CD may have an early withdrawal penalty, you’ll probably think twice about raiding your savings.

Another benefit 1-year CDs have over savings accounts is the guaranteed rate that applies for the full term. Savings account rates can change at any time as a result of changes in an interest rate environment or a bank’s priorities. That means over time, your rate of return could decline.

Note that there are downsides to choosing a 1-year CD over a savings account. Because CDs traditionally are not liquid accounts, it’s best to keep your emergency fund in a savings account. That way, you can easily access the funds you need to cover an unexpected expense without paying a penalty. Additionally, just as savings account interest rates can go down, they can also go up. By locking your money up in a CD, you could miss out on an opportunity to earn more interest.

1-year CD vs. money market account

Another option is parking your cash in a money market account. At some banks, the money market account requires a higher minimum deposit and pays more interest than the institution’s savings account.

Compared to money market account rates, however, 1-year CD rates tend to be higher. In many cases, you can qualify for one of the top 12-month CD deals without having to fork over a large amount of cash. At banks with a tiered interest rate structure, you may have to deposit more money to earn the top money market account rate.

Like savings accounts, money market accounts are worth considering if you’re not interested in tying up money for months or years at a time. You can easily withdraw your savings at any time without penalty, and at many banks, you’ll have access to a debit card.

1-year CD vs. a 5-year CD

While a 5-year CD might have a higher APY, a shorter-term CD can be a better option. CD rates could change significantly in a year and you might not want to miss out on a good deal. Given the current interest rate environment, however, going with a long-term CD like a 4-year or 5-year CD doesn’t make sense for many people.

“The current yields are barely ahead of what inflation is likely to be over the next five years,” McBride says. “So, there’s no guarantee of preserving your buying power, much less growing it by tying your money up for that long a period of time at this point.”

Carefully weigh the pros and cons, and consider using a CD laddering strategy to take advantage of different CD term lengths.

Compare: Best 12-month CD rates

BrioDirect – 2.50% APY, $500 minimum deposit to open

BrioDirect is another online-only bank. It’s a new division of Sterling National Bank, a subsidiary of Sterling Bancorp. In addition to CDs, BrioDirect offers a high-yield savings account with no fees and a low minimum deposit.

TotalDirectBank – 2.50% APY; $25,000 minimum deposit to open

TotalDirectBank is an online-only bank with CDs available nationwide. It is a division of City National Bank of Florida, which was founded in Miami more than 70 years ago.

Merrick Bank – 2.46% APY, $25,000 minimum deposit

Founded in 1997, the FDIC-insured institution is based in Utah and earned five out of five stars in the latest review of its financial health.

First National Bank of America – 2.45% APY, $1,000 minimum balance

It’s a community bank based in Michigan with three physical branches. The financial institution opened in 1955 as First National Bank of East Lansing. The company transitioned to First National Bank of Michigan in 1978 before ultimately becoming First National Bank of America in 1988. It earned 3.6 out of 5 stars in the full review of its products and offerings.

Rising Bank – 2.45% APY, $1,000 minimum balance

The institution is a new online division of Midwest BankCentre, a community bank that’s been around for more than a century. In the full review of its products and offerings, Rising Bank earned 3.1 out of five stars.

No-penalty CDs offer more freedom

Early withdrawal penalties can significantly reduce your earnings. To avoid forfeiting interest for closing out your account before the term officially ends, consider looking for liquid or no-penalty CDs.

Just keep in mind that the yields associated with no-penalty CDs tend to be lower than the rates tied to traditional CDs.

Here are some banks offering no-penalty CDs:

  • Marcus by Goldman Sachs: 7-13 months; 2.00% – 2.10% APY; $500 minimum deposit
  • Ally Bank: 11 months; 1.65% – 2.05% APY; $5,000 – $25,000 deposit to earn APY
  • CIT Bank: 11 months; 2.05% APY; $1,000 minimum deposit
  • PurePoint Financial: 11-14 months; 1.65% – 2% APY; $10,000 minimum deposit

Best 1-year CD rates, October 2019

Financial Institution APY Minimum Deposit
BrioDirect 2.50% $500
TotalDirectBank 2.50% $25,000
Merrick Bank 2.46% $25,000
First National Bank of America 2.45% $1,000
Rising Bank 2.45% $1,000

Learn more about other CD terms

Banks usually offer CDs across multiple terms. Depending on the institution, you may have the option of choosing an account maturing in less than a year. There are also CDs that mature in as many as 10 years.

Carefully consider your financial goals and needs. Weigh your options and make an informed decision about what CD is right for you. You might be perfectly fine with a short-term, 1-year CD. Or you may find that you’re better off opting for an account with a longer term.

Learn more about CDs