Savers looking to get a little extra boost and lock in a yield for a set period of time often look into certificates of deposit (CDs). A CD can help you work toward your savings goals, whether they’re long-term or short-term.
In general, CD yields are based on the federal funds rate set by the Federal Reserve. However, once you lock in a yield, you can expect it to be consistent for the entire term of the CD — even if rates fall.
Here’s what you need to know about using a 6-month CD to your advantage.
What is a 6-month CD?
Anytime you deposit into a CD, you promise to leave the money there for a set period of time. When you get a 6-month CD, the money remains in the deposit account for six months. Because you’re willing to lock the money away, a bank might be willing to pay you a higher yield on the money.
If you want to know how much interest you could earn on a 6-month CD, try Bankrate’s calculator, which is designed to help you estimate potential earnings. Six months may not be a long time, but it can be useful when it comes to staying on track with your savings goals or setting up an emergency savings ladder.
Finding the best 6-month CD rates
To find the best 6-month CD rates, savers need to answer two questions:
- How much yield can I reasonably expect to earn?
- What direction are interest rates headed?
Rates are trending downward. But if you’re looking for a short-term CD, it’s best to shop around for the best rates.
The lower the CD term length, the less interest you can expect to earn. To find the best 6-month CD rates, evaluate offers from online banks and credit unions. Try to avoid accounts with high fees and minimum deposit requirements.
Best 6-month CD details
CommunityWide Federal Credit Union: 2.35% APY
Communitywide Federal Credit Union was established in 1967 as the West Washington Association Federal Credit Union. Its purpose was to provide services to people of modest means in South Bend, Indiana, where it is currently based. With 11 offices in the Michigan area, the credit union offers its products nationwide.
CD Bank: 2.35% APY
The bank is the online division of TBK Bank. It launched in May 2017 and is based in Dallas. TBK Bank was founded in 1981.
My eBanc: 2.25% APY
A division of BAC Florida Bank, an FDIC-insured institution established in 1973 and based in Coral Gables, Florida. The bank is owned by Grupo Pellas, a business consortium with more than 140 years’ experience operating across 10 countries in various sectors.
iGObanking: 2.10% APY
iGObanking is one of the online divisions of Flushing Bank, a New York-based financial institutions founded more than 80 years ago. In Bankrate’s latest review of its financial health, Flushing Bank earned four out of five stars.
State Department Federal Credit Union: 2.06% 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.
Comparing 6-month CDs vs. other savings vehicles
When considering a 6-month CD, it’s a good idea to compare it to other available accounts and understand when it might be the right choice for you — and when other options might turn out to be a better decision.
6-month CD vs. savings account
Because you’re willing to keep your money in a CD for a set period of time, you usually end up with a higher rate with a CD than a savings account. In fact, you might have a rate that is up to 10 basis points higher on a 6-month CD than on a savings account.
However, savings accounts are easier to access as needed. With a savings account, you won’t face the early withdrawal penalty that comes with tapping your 6-month CD before it matures.
6-month CD vs. money market account
There’s a good chance you’ll get a better yield on a 6-month CD than on a money market account. So, if you’re looking for a better yield in a safe account, it can make sense to use a CD instead of a money market account.
On the other hand, a money market account is much more accessible than a 6-month CD. You might even be able to use a debit card to access the funds in the money market account — something you can’t do with a CD.
6-month CD vs. 1-year CD vs. 5-year CD
Better yields are generally available on CDs with longer maturities. So, if you’re willing to lock up your money for a year — or even up to five years — you could receive a better rate.
However, the advantage of a 6-month CD is that you know you’ll be able to access the money in a shorter time frame. Because a CD comes with an early withdrawal penalty, you have to be willing to keep your money in the CD until the end of the term or lose out on some of the interest earnings.
How to make the most of a 6-month CD
A 6-month CD works well with short-term savings goals. If you want to set money aside for a specific purpose, but you’re worried that you’ll be tempted to tap into the funds, a 6-month CD can help make the money harder to get to. You can keep the money safe in an FDIC-insured (or NCUA-insured) account until it’s needed.
You can also make use of a 6-month CD in an emergency fund ladder. By setting up a CD ladder that includes shorter-term CDs, it’s possible to take advantage of slightly higher yields while knowing that a portion of your money will be available for unexpected expenses in the near future.
Maximize the power of compound interest
Anyone struggling to save money could benefit from having a 6-month CD. Because you could face an early withdrawal penalty, you may be less tempted to tap into your savings prematurely.
In addition to comparing rates, pay attention to how frequently interest compounds. You’ll end up with a higher yield if you choose a bank that compounds interest daily versus one where interest compounds on a quarterly basis.
Things to keep in mind with a 6-month CD
Before you get a 6-month CD, it’s important to understand the potential drawbacks. The early withdrawal penalty is probably the biggest issue. If you access your funds before the six months is up, you’ll pay a penalty.
Plus, the yield often isn’t much higher on a 6-month CD than you’d see with a traditional savings account. You can shop around for the highest rates, but you might need to meet deposit minimums in order to take advantage of the best yields.
Carefully consider your options before you move forward with a 6-month CD.
Best 6-month CD rates, October 2019
|CommunityWide Federal Credit Union||2.35%||$1,000|
|State Department Federal Credit Union||2.06%||$500|