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CD Rates Are Inching Up – But Are They High Enough For Real Savings?

Written by Banks Editorial Team

Updated April 21, 2021​

2 min. read​

CD rates are becoming more enticing with increasing interest rates. However, we have a long way to go before paying off pre-recession levels. A Certificate of Deposit (CD), a time deposit sold throughout the U.S. by banks, thrift institutions, and credit unions, are often lumped together in financial discussions surrounding savings accounts today. Known as “insured money” in the bank, CDs are insured by the Federal Deposit Insurance Corporation, just like savings accounts. However, these entities come with notable savings account contrasts, seeing that they are a specific, with a fixed term and interested rate.

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CD Rates

Because of the term stipulations, banks generally grant higher interest rates on CDs than they do on accounts with free withdrawal, like savings accounts. More risk equals more reward, which is why CDs are so enticing to many investors and business owners today.

Interest Rate Hike

The Federal Reserve throughout 2017 has been tampering with interest rate hikes after declaring the economy stable enough to handle the rollout this past year. When these rates go up, everything from bond prices to mortgages are impacted. However, these spiked rates mean more favorable interest rates for bank deposits, including CDs. Savings account rates are slowly inching their way up, while CD rates seem to be moving a bit more quickly.

The CD yields are the highest we’ve seen since 2012, and according to a report by DepositAccounts, throughout 2017, the average yield for a 12-month CD rose by 0.567%. Things are looking good, but they have investors asking if CD investments are worth their time and money, with reports showing that they are still well below pre-recession levels today. According to, the CD rate is nothing like what it was a decade ago, at 3% for investors.

Pragmatic Outlook

Investment firms are warning not to put all your eggs in a CD basket anytime soon. While borrowers feel the sting from the gradual increase of interest rates, there is usually a substantial delay before savers are able to see any long-term benefits.

If you’re on the saving side of the equation, however, CDs are worth the consideration. However, institutions are still warning that signing onto something long-term, like a 5-year CD term, with their operation may not be wise. At the current rates, savers could see zero, or even negative, returns after inflation and taxes are taken into the equation.

Laddered CDs

One approach to CDs given the interest rate climate is to consider laddered CDs, otherwise known as putting your money into CDs with varying terms. Laddering the funds protects it if the Fed should hike interest rates in the future, which pundits believe is more than 50 percent likely. Additionally, this structure helps to protect against the unpredictability with the institutions, reporting that they do not recommend taking out CDs with terms longer than 3-years at this time.

The best of both worlds solution includes looking for CDs that have lenient withdrawal penalties, coupled with a high-yield rate given the climate today.

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