Best 5-year CD rates — February 2020

Thursday, February 20, 2020

 

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 future direction of interest rates, it makes figuring out where to park your cash a hard decision. The Federal Reserve isn't planning to cut rates again in the near future, but that could change.

Although average 5-year CD rates are hovering around 1.13 percent, we’ve shopped around to find some of the top nationally available CDs for you. Compare these offers, then calculate how much interest you would earn when your CD matures.

Summary of Best 5-year CD rates for February 2020

Bank APY Minimum Deposit Learn More
Schools First Federal Credit Union 2.35% $500
Delta Community Credit Union 2.35% $1,000
Amerant Bank 2.35% $10,000
America First Credit Union 2.30% $500
MySavingsDirect 2.30% $1,000
Popular Direct 2.26% $10,000

Note: The APYs (Annual Percentage Yield) shown are as of Feb. 1, 2020. The rates for some products may vary by region.

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. (FDIC), you can rest easy knowing each depositor is protected up to at least $250,000 per insured bank. At a National Credit Union Administration (NCUA) credit union, the standard share insurance amount is up to $250,000 per share owner, per insured credit union, for each ownership category.

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.

[READ: Best banks and credit unions for mobile banking]

Bankrate's best 5-year CD rates February 2020

  • Best Overall Rate: SchoolsFirst Federal Credit Union: 2.35% APY
  • Best Overall Rate: Delta Community Credit Union: 2.35% APY
  • Best Overall Rate: Amerant Bank: 2.35% APY
  • High Rate: America First Credit Union: 2.30% APY
  • High Rate: MySavingsDirect: 2.30% APY
  • High Rate: Popular Direct: 2.26% APY

Compare: Best 5-year CD rates for February 2020

Best Overall Rate: SchoolsFirst Federal Credit Union – 2.35% APY, $500 minimum deposit

SchoolsFirst Federal Credit Union was formed during the Great Depression in 1934. The credit union, created by school employees, has 50 branches.

SchoolsFirst Federal Credit Union has low minimum balances and CD terms from as short as 30 days to as long as five years. The more money you put in your CD, the higher the APY.

Best Overall Rate: Delta Community Credit Union –  2.35% APY, $1,000 minimum deposit

Delta Community Credit Union began as the Delta Employees Credit Union in 1940. It was started by eight Delta Air Lines employees. Delta Community Credit Union has more than 400,000 members and has 26 branches in metro Atlanta and three branches outside of Georgia.

Anyone living or working in metro Atlanta and employees of more than 150 businesses are welcome at Delta Community Credit Union. Delta Air Lines, Chick-fil-A and UPS are some of the eligible businesses.

Best Overall Rate: Amerant Bank – 2.35% APY, $10,000 minimum deposit

The Amerant Bank five-year CD has a competitive yield, but isn’t available in Florida and Texas. Amerant Bank has 26 banking centers in those two states, with 18 in South Florida and eight in Houston.

Amerant Bank offers competitive yields on all six of the CD terms that it offers. But the minimum deposit to both open and earn this APY is $10,000. So savers just starting out might need to look for lower minimum balance options.

High Rate: America First Credit Union – 2.30% APY, $500 minimum deposit

America First Credit Union was founded in 1939. It has 131 locations and is the ninth largest credit union, based on assets, in the U.S. It also is the sixth largest based on membership with more than a million members.

High Rate: MySavingsDirect – 2.30% APY, $1,000 minimum deposit

MySavingsDirect is a division of Emigrant Bank. It offers competitive yields on a savings account and its CDs.

A five-year CD at MySavingsDirect has an early withdrawal penalty of 180 days of interest. This amount is based on the contract rate on the principal amount.

You need to deposit at least $1,000 to get this APY. MySavingsDirect currently offers the same APY on CDs with terms of five years up to 10 years.

High Rate: Popular Direct – 2.26% APY, $10,000 minimum deposit

Popular Direct offers a savings account and term CDs. Both the Popular Direct savings account and its CDs are for established savers, since the CDs have a $10,000 minimum deposit requirement and the Ultimate Savings account requires a $5,000 minimum deposit.

All Popular Direct deposit accounts are opened through Popular Bank.

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.

Pros:

  • Limited liquidity. This can be a benefit to those who might be tempted to spend their savings. Keeping money that shouldn’t be touched out of easy reach in a CD can help some keep their savings intact. Just make sure this is money that you don’t expect to need for at least five years. It’s also important to understand the early withdrawal penalty that you’d incur if you did end up needing that money sooner.
  • Safety. CDs from FDIC-insured banks and credit unions are backed by the full faith and credit of  the U.S. government up to $250,000.
  • High returns. Banks generally provide a higher APY 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 , minimum deposit amount 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.

Cons:

  • 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. You’ll want to look at a shorter-term CD or a savings account if you think it’s likely you’ll need this money in less than five years.
  • Inflation risk. The money in your CD may lose its purchasing power over time, if inflation overtakes your interest gains.
  • Low relative returns.  There are other investment options to consider where you could earn a higher return on your investment. But many times these investments could involve a risk of principal. As long as you leave your money in the CD for the full five years -- and you’re within FDIC guidelines if it’s at an FDIC-insured bank -- then a CD with a fixed APY will earn that yield.
  • 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. These usually have lower APYs and these APYs are usually variable.
  • 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. Some of these accounts may have an early closeout fee if you close the account within 90 to 180 days.
  • 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

Who should open a 5-year CD?

The Fed cut interest rates three times in 2019. CD rates. In 2020, CD APYs are expected to stabilize, but could soon rise slightly. Long-term investment vehicles like 5-year CDs technically offer a higher yield than their shorter-term counterparts. But due to the flat yield curve, you won't be earning much extra interest by opting for a long-term CD over a mid-term account.

A 5-year CD is best for retirees and savers who don't need access to a portion of their funds for half a decade. It all depends on your time horizon and financial goals. A 5-year CD could also be a good addition to a CD ladder for savers who want to take advantage of the opportunity to earn a higher yield but still want liquidity and access to cash at set intervals.

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

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