Compare no-penalty CDs
Traditional CDs typically come with early withdrawal penalties that 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. A no-penalty CD might be a good option during uncertain economic times.
Just keep in mind that the yields associated with no-penalty CDs tend to be lower than the rates tied to traditional CDs.
These four banks offer no-penalty CDs:
- Ally Bank: 11 months; 0.60% APY, $0 deposit to earn top APY
- Marcus by Goldman Sachs: 7-13 months; 0.35%-0.75% APY, $500 minimum deposit (13-month CD is 0.75% APY)
- CIT Bank: 11 months; 0.30% APY, $1,000 minimum deposit
- PurePoint Financial: 11-14 months; 0.10%-0.15% APY, $10,000 minimum deposit (11-month CD is 0.15% APY)
1-year CD FAQs
What is a 1-year CD?
Having a one-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 without incurring an early withdrawal penalty. In exchange, you’ll earn a higher yield than you would from a standard savings account or money market account.
Who should open a 1-year CD?
If you’re not planning to touch your money for a year and believe the benefits of a one-year CD are more attractive than the yield associated with a liquid savings account, then a one-year CD is worth considering.
Today’s top nationally widely available one-year CDs pay 0.65 percent APY. That’s not enough to retire on, but it’s a good vehicle to meet short-term financial obligations (like saving for a down payment on a house) that can let your money grow near the rate of inflation without having to worry about missing out on better deals that arrive after you invest.
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 APY 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 APY. The APY includes the effects of compounding. Compound interest is the interest you earn on interest.
Calculate how much interest you’ll earn as you compare APYs.
Right now, CD rates remain at historic lows, so it pays to shop around to find the best deal. Be sure to research local banks and reputable online banks, where you may be able to find a better rate.
Can you lose money with a 1-year CD?
As long as you choose a one-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-backed bank is insured for up to $250,000. No depositor has lost any money on FDIC-insured funds as a result of a bank failure, according to the FDIC website. If you’re concerned about FDIC insurance eligibility, use the FDIC’s Electronic Deposit Insurance Estimator.
It’s also important to factor in rising prices. 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 one-year CD, it’s important to find out how it stacks up against other types of investment vehicles. Read on to find out how one-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 one-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.
There are downsides to choosing a one-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, one-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 high-yield 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 some banks, you’ll have access to a debit card. Keep in mind that money market accounts are usually limited to a maximum of six convenient transfers or withdrawals per month or per statement cycle because of Regulation D. There may be a fee for exceeding this limit. But these days some banks are allowing more transactions per statement cycle on savings deposit accounts. Union Bank, for instance, currently doesn’t have limits on the number of checks you can write from its MoneyMarket account.
1-year CD vs. a 5-year CD
While a five-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 four- or five-year CD doesn’t make sense for many people.
Carefully weigh the pros and cons, and consider using a CD laddering strategy to take advantage of different CD term lengths.
Here are the best 1-year CD rates for May 2022
Financial Institution |
1-Year APY |
Minimum Deposit for APY |
Learn More |
Live Oak Bank
|
1.75%
|
$2,500
|
Read review |
Bread Savings (formerly Comenity Direct) |
1.50% |
$1,500 |
Read review |
Barclays Bank
|
1.30%
|
$0
|
Read review |
Marcus by Goldman Sachs |
1.30% |
$500 |
Read review |
TAB Bank
|
1.30%
|
$1,000
|
Read review |
Discover Bank
|
1.30%
|
$2,500
|
Read review |
LendingClub Bank |
1.30% |
$2,500 |
Read review |
First Internet Bank of Indiana
|
1.26%
|
$1,000
|
Read review |
Capital One
|
1.25%
|
$0
|
Read review |
CIBC Bank USA
|
1.25% |
$25,000 |
Read Review |
American Express Bank
|
1.20%
|
$0
|
Read review |
Synchrony Bank
|
1.20%
|
$0
|
Read review |
Limelight Bank
|
1.20%
|
$1,000
|
Read review |
TIAA Bank
|
1.20% |
$1,000 |
Read review |
Popular Direct |
1.20% |
$10,000 |
Read review |
Vio Bank
|
1.00% |
$500 |
Read Review |
Sallie Mae Bank
|
1.00% |
$2,500 |
Read review |
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, one-year-CD. Or you may find that you’re better off opting for an account with a longer term.