The recent decision by the Federal Reserve to maintain its benchmark rate for the third consecutive meeting provides a period of stability for savers. Despite concerns over potential tariff impacts on inflation, this decision ensures that certificates of deposit offering up to 4.50% APY remain attractive options for those looking to maximize their returns in the current interest rate environment.
Certificates of deposit offer a level of predictability in today’s ever-changing financial landscape. By locking in your yield for the entire term, CDs provide certainty about future returns regardless of economic developments or policy changes that may occur during the deposit period. With a straightforward structure combining security and competitive performance, online institutions typically offer higher yields compared to traditional banking products, while still ensuring full protection of deposits up to $250,000 through FDIC insurance.
For those seeking the highest APYs on FDIC-insured CDs, consider exploring options with digital banks and online accounts. As of Friday, May 9, 2025, prominent providers such as Bread Financial, Alliant Credit Union, and others offer rates of up to 4.40% APY with minimal or no minimum deposit requirements.
Here are some of the top CD rates available as of Friday, May 9, 2025:
– Bread Financial Savings CDs: 4.40% APY on 6-month terms with a $1,500 minimum
– Valley Bank Online CDs: Up to 4.30% APY on 3-month terms with a $25,000 minimum, and 3.90% APY on 12-month terms with a $500 minimum
– Alliant Credit Union CDs: 4.10% APY on 6-month terms with a $1,000 minimum
– Discover Bank CDs: 4.00% APY on 12-month terms with no minimum
– Raisin/American First Credit Union CDs: 4.00% APY on 12-month terms with a $1 minimum
– Barclays Bank Online CDs: 4.00% APY on 12-month terms with no minimum
– CIT Bank No-Penalty CD: 3.50% APY on an 11-month term with a $1,000 minimum
While online-only banks and digital accounts may not be as well-known as traditional banks, it’s important to note that each is FDIC-insured or partners with an FDIC-insured bank, ensuring that deposit accounts are protected for up to $250,000 by the Federal Deposit Insurance Corporation or the National Credit Union Administration, similar to accounts at your local bank.
The FDIC is responsible for maintaining stability and public confidence in the U.S. financial system by providing insurance on consumer deposit accounts. Here is a comparison of FDIC national deposit rates on a $10,000 minimum deposit between April and March 2025 for traditional low-interest deposit accounts:
– Savings: 0.41% in April and March (no change)
– Interest checking: 0.07% in April and March (no change)
– Money market: 0.62% in April and 0.63% in March (down 1 basis point)
– 1-month CD: 0.24% in April and 0.25% in March (down 1 basis point)
– 3-month CD: 1.42% in April and 1.43% in March (down 1 basis point)
– 6-month CD: 1.60% in April and 1.61% in March (down 1 basis point)
– 12-month CD: 1.77% in April and 1.78% in March (down 1 basis point)
– 24-month CD: 1.49% in April and March (no change)
– 36-month CD: 1.35% in April and March (no change)
– 48-month CD: 1.27% in April and March (no change)
– 60-month CD: 1.34% in April and March (no change)
There has been minimal movement in average rate updates for traditional savings accounts over the past year, with more significant changes seen in short- and long-term CDs.
CD rates are closely tied to the key interest rate set by the Federal Reserve. As the Fed rate increases, so do the APYs on savings products like CDs, high-yield accounts, and money market accounts.
The Federal Reserve made a highly anticipated half-point cut to its federal funds target interest rate on September 18, following two additional quarter-point cuts after its November and December policy meetings. On May 7, 2025, the Fed decided to leave the federal funds target interest rate unchanged at 4.25% to 4.50%. The Fed aims to achieve maximum employment and control inflation at 2%.
Looking ahead to the next policy meeting on June 17–18, 2025, it is uncertain what the Federal Reserve will decide. However, market expectations suggest a possibility of another quarter-point cut in June, with a more than 70% chance of rates remaining unchanged according to the CME FedWatch Tool.
Economists are carefully monitoring inflation and labor reports as they speculate about the timing of future cuts to the Fed rate. Recent data shows that inflation has decreased from a peak of 9.1% in June 2022 to rates ranging between 2.5% and 4% since May 2023. The latest job report from the Bureau of Labor Services, released on May 2, revealed that employers added 177,000 jobs in April, exceeding expectations but falling short of the revised 185,000 roles added in March. The unemployment rate remained steady at 4.2%. Inflation, as indicated by the consumer price index released on April 10, eased to 2.4% in March, lower than forecasted and down from 2.8% in February. Prices dropped by 0.1% for the month, marking the first monthly decline since May 2020, driven by reduced energy costs and lower travel expenses. The producer price index released on April 11 further supported this cooling trend, showing a 0.4% decrease in wholesale prices in March, the largest monthly decline since October 2023, with gasoline prices plummeting by 11.1%. Despite the positive signs of moderating inflation, economists are wary of potential price growth acceleration due to President Trump’s trade policies. Federal Reserve Chair Jerome Powell, speaking after a meeting on May 7, maintained a wait-and-see approach to rate cuts, emphasizing the need for more data before making any decisions. The Fed’s rate-setting panel, led by Powell, is scheduled to announce a rate decision on Wednesday, June 18, 2025, at 2 p.m. ET.
For more information on the upcoming Federal Reserve meeting and how it may impact your finances, consider the following factors when comparing Certificate of Deposit (CD) options:
1. Term length: Choose a CD term based on your savings goals, opting for shorter terms for immediate objectives and longer terms to secure higher Annual Percentage Yields (APYs).
2. Rate of return: Look for the highest APY available for your chosen term to maximize interest earnings.
3. Minimum deposit: Be aware of any minimum deposit requirements, as higher initial deposits often yield higher APYs.
4. Type of bank or financial institution: Online banks generally offer better interest rates compared to traditional brick-and-mortar banks or credit unions. Consider your comfort level with online banking when selecting a CD.
5. Penalties and fees: Understand the penalties for early withdrawal or account closure, and ensure they align with your financial goals and flexibility needs.
Life can be unpredictable, and there may come a time when you need to access your funds from a Certificate of Deposit (CD) before it reaches maturity. Early withdrawal penalties are usually calculated as a certain number of months’ worth of interest that you would forfeit, such as 90 days for CDs with terms up to 24 months. Generally, the longer the CD term, the higher the penalty fee will be.
Digging deeper: When is it advisable to break a CD? Insights on early withdrawals and breaking even
Benefits of a certificate of deposit:
1. Guaranteed returns: By investing in a CD, you can secure a fixed interest rate over the term of your investment, which you will receive in full once the CD matures.
2. Higher rates compared to traditional accounts: Many banks and financial institutions offer CDs with interest rates higher than those of regular savings or money market accounts. Digital and online banks often provide the best rates on average.
3. Variety of CD terms: CDs are available with terms ranging from three months to five years or longer, catering to various financial objectives. For instance, six-month CDs may offer better rates than standard bank accounts, while longer terms can match the rates of top high-yield savings accounts.
Drawbacks of a certificate of deposit:
1. Penalties for early withdrawals: If you need to withdraw funds from your CD before it matures, you will incur fees equivalent to several months’ worth of interest, potentially ranging from three to six months’ worth, depending on the account and term.
2. Not the highest investment returns: While CDs provide a safe means of earning interest, other investments like stocks, bonds, mutual funds, or annuities may offer higher returns over the long run. Additionally, locking your funds in a CD could cause you to miss out on potential increases in average interest rates.
3. Inflexibility in adding more funds: Once your CD is locked in, you cannot increase your balance until after it matures. At that point, you can choose to transfer your funds to another account or renew the CD.
Digging deeper: High-yield savings account vs. CD: Key considerations when interest rates are high
Alternatives to a certificate of deposit:
A CD is not the sole low-risk option for earning interest on your savings. Consider these alternatives that provide secure and consistent returns along with the flexibility to add or withdraw funds without penalties:
1. High-yield savings account (HYSA): Offering variable rates of 5% APY or higher, an HYSA allows for rapid growth of your savings without penalties for withdrawals.
2. Money market account (MMA): Also known as a money market savings account, an MMA can offer higher rates than traditional savings accounts while providing easy access to your funds.
3. Higher-risk investments: Investing in stocks, index funds, or mutual funds through brokerage accounts may yield higher returns than CDs, though they come with increased risk of potential losses.
Digging deeper: Exploring the best
Banks make money by charging higher rates on the money they lend out compared to the interest they pay on customer deposit accounts. This difference, known as a spread, is essential for banks to generate profits. Unlike a regular savings account that allows flexible access to your funds without penalties, a Certificate of Deposit (CD) requires you to commit your deposit for a specific period, receiving the principal and interest upon maturity. This locking-in period allows banks to plan their finances better and potentially offer slightly higher interest rates in return for the stability it provides.
When it comes to online-only banks like Lending Club or SoFi, your money is safe. These banks are as secure as traditional brick-and-mortar banks, either being FDIC-insured chartered banks or partnering with established financial institutions to offer protected deposit accounts up to $250,000. Look for terms like “member FDIC,” “FDIC insured,” or “NCUA insured” to ensure your funds are safeguarded in case of any unforeseen circumstances.
Compound interest is the concept of earning interest on both your initial deposit and any interest accrued over time. This compounding effect can significantly boost your savings by allowing each dollar to work harder and grow faster towards your financial goals. An Annual Percentage Yield (APY) reflects the total interest earned on your deposit over a year, including compounding, expressed as a percentage.
A jumbo CD is a type of certificate of deposit that necessitates a minimum deposit of $100,000 to open. Similar to regular CDs, jumbo CDs offer fixed interest rates and terms. While they historically provided higher rates than traditional CDs, the current economic landscape might not always guarantee that jumbo CDs offer better interest rates. It’s advisable to research and compare options before committing to a jumbo CD to ensure favorable terms.
A no-penalty CD, also known as a liquid CD, functions similarly to a traditional CD but allows for penalty-free withdrawals before maturity. While this flexibility can be beneficial, it often comes with lower interest rates compared to traditional CDs. Given the current high-interest rate environment, high-yield savings accounts may offer comparable or even superior rates with similar flexibility.
A CD ladder is a savings strategy involving the distribution of funds across multiple CDs to capitalize on higher rates without locking all your investment into one long-term CD. This approach provides access to a portion of your money at regular intervals, enabling you to secure the best rates available while enjoying periodic returns.
Lastly, a brokered CD is a type of certificate of deposit that is purchased through a brokerage firm rather than directly from a bank.
When you purchase a certificate of deposit (CD) through a brokerage firm instead of a bank or credit union, you are investing in a brokered CD. Similar to traditional CDs, you select a term length that comes with a fixed interest rate. However, unlike regular CDs, brokered CDs can be acquired through your investment account, either new or from other investors. Explore more about brokered CDs and factors to consider before investing in them.
Understanding the contrast between saving and investing is crucial. Saving involves keeping your money in secure accounts with minimal risk of losing your principal, while investing entails purchasing assets such as stocks, bonds, or mutual funds that offer the potential for higher returns. Discover further insights in our saving and investing guide to determine the optimal strategy for growing your nest egg.
Please note that the annual percentage yields (APYs) mentioned were accurate as of Friday, May 9, 2025, at 7 a.m. ET. APYs and promotional rates for certain products may vary by region and are subject to change.
References:
– National Rates and Rate Caps, FDIC. (Accessed April 22, 2025)
– Consumer Price Index Summary, U.S. Bureau of Labor Statistics. (Accessed April 11, 2025)
– Producer Price Index News Release Summary, U.S. Bureau of Labor Statistics. (Accessed April 14, 2025)
– Employment Situation Summary, U.S. Bureau of Labor Statistics. (Accessed May 5, 2025)
