A certificate of deposit, or CD, is an account that allows you to stash away some cash and earn fixed interest on it for a set period of time.
A 5-year CD can get you one of the highest savings rates while offering safety and a guaranteed return. In exchange for handing over your money for a longer term, banks are usually willing to offer you a higher interest rate. However, with the uncertainty over the direction of interest rates — the Federal Reserve cut rates again recently — it makes figuring out where to park your cash a hard decision.
Although average 5-year CD rates are hovering around 1.20 percent, we’ve shopped around to find the top nationally available CDs for you. Compare these offers, then calculate how much interest you would earn when your CD matures.
Table of Contents
- Finding the best 5-year CD rates
- Pros and conts of 5-year CDs
- Alternatives to 5-year CDs
- 5-year CD FAQs
- Compare: Best 5-year CD rates for October 2019
- Learn more about other CD terms
Best 5-year CD rates of October 2019
- CommonWealth One Federal Credit Union: 3.11% APY; $1,000 minimum deposit
- US Senate Federal Credit Union: 3.05% APY; $20,000 minimum deposit to earn APY
- Affinity Plus Federal Credit Union: 3.00% APY; $500 minimum deposit to open
- Hiway Federal Credit Union: 3.00% APY; $25,000 minimum deposit to open
- State Department Federal Credit Union: 2.98% APY; $500 minimum deposit to earn APY
Finding the best 5-year CD rates
Savers looking for the best CD rates probably want to venture online. Even if a bank is relatively small or not well-known, as long as it’s a member of the Federal Deposit Insurance Corp., you can rest easy knowing your deposits will be returned. The same goes for credit unions backed by the National Credit Union Administration.
One thing to look for, though: ease of use. Banks that make it difficult or time-consuming to deposit and withdraw funds may waste so much of your time that it outweighs the benefit of a few extra basis points of interest on your savings.
Pros and cons of 5-year CDs
Before getting a 5-year CD, consider the pros and cons to see if it’s the right fit for you.
- Limited liquidity. This can be a benefit to those who might be tempted to spend their savings. “Not only will you earn interest on your account, but there’s also a psychological advantage to placing money in a CD rather than in an easily accessed savings account,” says Logan Allec, a CPA and owner of personal finance site Money Done Right.
- Safety. CDs from federally insured banks and credit unions are backed by the U.S. government up to $250,000 — meaning your investment is ultra-secure.
- High returns. Banks are generally willing to provide a higher interest rate than you could find in a traditional savings account or a CD with a shorter maturity.
- Wide selection. You can choose from thousands of banks and credit unions to find a CD with the interest rate, maturity date and terms that fit your needs.
- Fixed, predictable returns. Once you put your money in a CD, you’re guaranteed a set return at a specified date — which can help you plan your financial goals.
- Limited liquidity. Although a pro for some savers, this is a drawback for those who need to access their funds before the CD’s term is up. You’ll typically have to pay a penalty for making early withdrawals.
- Inflation risk. The money in your CD may lose its purchasing power over time, as inflation overtakes your interest gains.
- Low relative returns. “While the money in your CD is generally (more stable) than money invested in the stock market, you may not earn as much with your CD as you would in the market,” Allec says. “A low-risk investment, like a CD, brings you a lower return.”
- Reinvestment risk. When you park your money in a 5-year CD, it’s a long wait before you can tap those funds. If interest rates rise in the meantime, you’ll miss out on investing in a higher-rate CD.
Alternatives to 5-year CDs
- CDs with a shorter maturity: These allow you to earn interest and potentially take advantage of rising rates once they mature. Check out 1-year and 18-month CDs if you don’t want to lock away your money for five years.
- Savings accounts: These offer total liquidity, so you can get your hands on your money as soon as you need it and pay no penalties. Traditional savings accounts may come with a lower interest rate than CDs, but “if you are comfortable putting your money into an online bank, you may be able to find some interest rates that could come close to that of a 5-year CD,” Allec says.
- Money market accounts: These accounts allow you to access your money (with no penalties) while still providing a higher return than most savings accounts. To open a money market account, many institutions require a relatively high minimum balance—but that can also mean getting a higher interest rate.
- Bonds: If you’re interested in taking a bigger risk, you may consider investing in bonds. There are many types available, including municipal, corporate and agency bonds.
5-year CD FAQs
Why should I get a 5-year CD?
You should get a 5-year CD if you want some of the best CD yields available. Usually, the longer the time horizon, the higher the APY is on a CD. If you’re satisfied with the APY on the 5-year CD and like to know that you have a certain amount of money at a fixed rate for the next five years, a 5-year CD may be a good option for you.
A 5-year CD could also be a part of a CD ladder, which contains shorter-term CDs. For instance, a 1-year, 2-year, 3-year, 4-year and a 5-year CD could be a part of a ladder that staggers maturities and APYs.
Is a 5-year CD versatile?
With a 5-year CD, savers earn a premium in addition to the normal risk-free rate they get on a conventional savings account. The catch, of course, is that you’ll pay a penalty if you try to withdraw your money.
But assuming you can find a CD with a low penalty of just a few months’ interest, higher interest rates offered on 5-year CDs may make them a good pick over shorter maturities, even if you think you might need to cash in the CD early.
Is a 5-year CD worth it?
There are two factors that determine whether a 5-year CD makes sense for you: your time horizon for this money and whether you’re getting a competitive annual percentage yield (APY).
The length of time is important because you want to make sure that you don’t incur an early withdrawal penalty. You also want to be aware of inflation and try to have a CD that is earning a yield that can keep up.
Can a 5-year CD lose value?
A 5-year CD could lose value if you incur an early-withdrawal penalty. That fee could eat into your principal amount. But if you keep the 5-year CD for the full term, you will earn the stated interest – assuming the product you’re in is a fixed-rate CD.
Each depositor is insured to at least $250,000 per FDIC-insured bank by the Federal Deposit Insurance Corp. (FDIC). The standard share insurance amount is $250,000 per share owner, per insured credit union, for each ownership category at National Credit Union Association (NCUA) institutions.
Compare: Best 5-year CD rates for October 2019
Best Overall: CommonWealth One Federal Credit Union – 3.11% APY
The credit union is based in Alexandria, Virginia and was chartered in 1944 as Army Air Force Annex #1 Credit Union. Back then, there were only 94 members. Today, there are more than 32,600 members and anyone can join by becoming a lifetime member of the Virginia Consumer Council.
Runner-up: US Senate Federal Credit Union – 3.05% APY
The credit union was founded in 1935. Formerly known as the United States Senate Employees Federal Credit Union, it currently serves employees of several government bodies, select employer groups and anyone who donates $8 to the American Consumer Council, Virginia Chapter, or $50 to the U.S. Capitol Historical Society when opening an account. The credit union earned five out of five stars in Bankrate’s review of its financial health.
Best High Rate: Affinity Plus Federal Credit Union – 3.00% APY
Founded in 1934 and based in Saint Paul, Minnesota. Membership is open to anyone who makes a one-time $25 donation to the Affinity Plus Foundation, which supports financial education across the state. The credit union earned four out of five stars in Bankrate’s latest review of its financial health.
Best High Rate: Hiway Federal Credit Union – 3.00% APY
Hiway Federal Credit Union: Founded in 1931 to serve employees of the Minnesota Department of Transportation. The credit union, based in St. Paul, Minnesota, has since grown to 75,000 members. Membership is open to anyone who makes a one-time $10 donation to the Minnesota Recreation and Park Foundation.
Best High Rate: State Department Federal Credit Union – 2.98% APY
Based in Alexandria, Virginia, State Department Federal Credit Union was founded in 1935 and was originally named U.S. Department of State Employees Federal Credit Union. Today it serves more than 84,000 members worldwide.
Summary of Best 5-Year CD Rates October 2019
|CommonWealth One Federal Credit Union||3.11%||$1,000|
|US Senate Federal Credit Union||3.05%||$20,000|
|Affinity Plus Federal Credit Union||3.00%||$500|
|Hiway Federal Credit Union||3.00%||$25,000|
|State Department Federal Credit Union||2.98%||$500|