Certificates of deposit are safe vehicles for investors hoping to avoid taking on too much risk. If you keep your funds locked up for an entire term, 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’s chief financial analyst.

What is a 1-year CD?

Having a 1-year CD means that your savings will be tied up for 12 months. 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.

Here are the top nationally available 1-year CD rates. The best options pay nearly three times the national average of 1 percent APY, according to Bankrate’s most recent national survey of banks and thrifts. That’s not enough to retire on, but a 1-year CD is a good vehicle if you’re trying to meet short-term financial obligations (like saving for a down payment on a mortgage).

Best one-year CD rates for July 2019

  • TotalDirectBank: 2.82% APY; $25,000 minimum deposit to open
  • Limelight Bank: 2.80% APY; $1,000 minimum deposit to open
  • Home Loan Investment Bank: 2.80% APY; $2,500 minimum deposit to open
  • Comenity Direct: 2.80% APY; $1,500 minimum deposit to open
  • First National Bank of America: 2.75% APY; $1,000 minimum deposit to open

Compare these offers, then calculate how much interest you would earn when your CD matures.

Best 1-year CD details

  • 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. City National Bank of Florida earned four out of five stars in Bankrate’s latest review of its financial health.
  • Limelight Bank is an online bank headquartered in Provo, Utah. It prides itself on being eco-friendly and uses deposits from its customers to make loans for solar energy projects. Deposits are federally insured through Capital Community Bank, which earned five out of five stars in Bankrate’s latest review of its financial health.
  • Home Loan Investment Bank was founded in 1959. In addition to offering retail banking products, the financial institutions provides residential and commercial lending services in addition to financing solutions for small businesses. The bank earned five out of five stars in the latest review of its financial health.
  • Comenity Direct is an online-only bank offering FDIC-insured CDs nationwide. It is a brand of Comenity Capital Bank, which began issuing business credit cards in 1989. Based in Salt Lake City, the bank earned a five-star rating in Bankrate’s latest review of its financial health.
  • First National Bank of America is based in East Lansing, Michigan. In addition to its headquarters, the community bank has branches in Traverse City and Grand Rapids. The bank earned 3.6 stars in Bankrate’s full review of its offerings.

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.

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.

CD rates remain low by historical standards. But if you’re willing to 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.

1-year CD vs. other investment accounts

A 1-year CD is useful only if you don’t plan to touch the money for a full 12 months. Breaking the contract you made with a bank or credit union and dipping into your account before it matures could cost you quite a bit of interest.

If you think you’ll need to access the money before the CD matures, something that’s more liquid — like a money market account — could be a better place for your funds. You may be stuck with a lower interest rate, but you’ll have the flexibility to use your savings to cover a last-minute trip or an emergency expense.

Bonds are another option for conservative investors, but they move in a different direction from interest rates. As interest rates go up, bond yields go down.

1-year CD vs. savings and money market accounts

There are upsides to choosing a 1-year CD over a more liquid account offered by a bank or credit union.

  1. Higher APY: The best 1-year CDs pay a higher APY than savings and money market accounts. While there are higher APYs tied to CDs with longer terms, a 1-year CD will mature more quickly, giving you the opportunity to take advantage of more attractive rates that could be available 12 months from now.
  2. Savings are harder to access: If you’re saving, sometimes it’s better to have your money a little out of reach. A 1-year CD can help savers who are tempted to spend the money they should be socking away. In a liquid savings account, there is usually no consequence for withdrawing funds. But since your CD may have an early withdrawal penalty, you’ll think twice before pulling the money out of your account.
  3. Guaranteed rate: Unlike a savings account – which has a variable interest rate that can change at any time – a fixed-rate CD can help you determine exactly how much interest you’ll earn within the next year. That’s not the case with a savings or money market account, which has a rate that could change at any time. Depending on the interest rate environment, savings and money market account rates may decline.

The drawbacks of choosing a 1-year CD over a savings account

Before going with a 12-month CD over a savings or money market account, consider the downsides.

  1. Early withdrawal penalty: With a traditional CD, once you open and fund your account, you’re expected to keep your money locked up until the end of the term. Trying to make a withdrawal will trigger a penalty, which varies depending on the length of the CD term and the bank holding your money. Emergency funds should be kept in a savings or money market account instead that’s more accessible. When you pull money from one of these accounts, you usually won’t have to worry about losing any interest. An alternative to opening a traditional CD is a no-penalty CD, which allows you to withdraw funds without penalty seven days after funding your account.
  2. Rates might go up: If CD rates – especially longer-term rates – were to increase substantially, you may miss out on earning more interest within the next 12 months.
  3. Liquid accounts have similar APYs: The best savings accounts pay less interest than a 1-year CD, but the difference isn’t that significant. So if you’re on the fence about whether a 1-year CD is right for you, put your money in a high-yield savings account or one of the best money market accounts.

Can you lose your money in a 1-year CD – or in a CD in general?

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.

1-year CD penalties

Synchrony Bank, iGObanking, Marcus by Goldman Sachs and Barclays Bank have some of the most competitive yields on their CDs. Here’s a look at the penalties tied to their 1-year CDs.

  • Synchrony Bank: 90 days of simple interest at the current rate.
  • iGObanking: A fee equal to six months of simple interest may be imposed.
  • Marcus by Goldman Sachs: 270 days simple interest on the principal at the rate in effect.
  • Barclays: Charges 90 days simple interest on the amount withdrawn.

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.”

To recap, see below the best 1-year CD rates

Bank APY Minimum deposit
 TotalDirectBank 2.82% $25,000
Limelight Bank 2.80% $1,000
Home Loan Investment Bank 2.80% $2,500
Comenity Direct 2.80% $1,500
First National Bank of America 2.75% $1,000