Key takeaways

  • One-year CDs offer higher interest than savings and money market accounts, but you have to shop around for the best rates.
  • The best one-year CD rates are more than twice as high as the national average.
  • Online banks tend to pay higher rates than traditional brick-and-mortars.

A significant benefit of a one-year certificate of deposit (CD) is that it may earn a higher yield than a savings or money market account, in exchange for your locking in the funds for 12 months. Due to their relatively short term, one-year CDs are an attractive option for savers who prefer access to their money soon to make a planned purchase or a new investment.

A CD typically earns a fixed annual percentage yield (APY), so you’ll be able to determine exactly how much money will be in the account when the term ends. Here we’ll provide examples in which $2,500 is invested in a one-year CD in accounts that pay the national average rate, a highly competitive rate and a typical rate earned by big brick-and-mortar banks. We’ll show you how much money you’d have when each of these three CDs matures in 12 months.

Type of 1-year CD Typical APY Interest on $2,500 after 1 year Total value of CD with $2,500 opening deposit after 1 year
CDs that pay competitive rates 4.75% $118.75 $2,618.75
CDs that pay the national average 1.74% $43.50 $2,543.50
CDs from big brick-and-mortar banks 0.03% $0.75 $2,500.75

Rates are as of Oct. 2, 2024.

How the highest CD rates compare to the national average

The national average one-year CD rate has stayed somewhat steady since September 2023, increasing or decreasing just a few basis points. The current 1.74 percent that one-year CDs are earning on average across the country is certainly better than the rates you’d earn on a traditional savings account at some of the largest banks and credit unions. And it’s even better than what you’d earn on a one-year CD at those same brick-and-mortars, which is currently around 0.03 percent. Chase, for example, pays even lower at 0.01 percent on all terms for its standard CDs.

But that national average isn’t nearly as high as the one-year CD rates offered at online banks, which don’t have to cover the cost of physical buildings and other overhead costs some of the more traditional giants face. For instance, dozens of banks and credit unions currently offer one-year CDs that pay an APY of 4 percent or higher. The highest APYs available right now are near 4.75 percent.

Factors that can affect CD returns

  • Amount of deposit: No matter what rate a CD pays, the more money you deposit, the more interest you’ll ultimately earn. Some banks require minimum deposit amounts for CDs, which may range from $50 to $2,500 or more.
  • APY: Often referred to simply as the yield or the rate, the APY indicates how much a bank account earns in one year. The higher the APY, the more interest you’ll earn.
  • Length of CD term: CD APYs tend to vary based on the length of the term, which usually ranges from three months to five years. The longer the term, the more time your money has to earn interest. While longer terms sometimes mean higher rates, this isn’t always the case. For instance, while the national average for a one-year CD is currently 1.74 percent, the national average for a five-year CD is only 1.42 percent.

1-year CD vs. savings account

The best online savings accounts currently pay APYs of nearly 5 percent. When choosing between a one-year CD and a savings account, there are factors to consider:

Liquidity: If you might need the funds for emergencies or other expenses before the 12 months are up, a savings account is a better choice. This is because you can withdraw money from a savings account at any time, while taking money out of a CD before the term ends usually results in an early withdrawal penalty.

Fixed or variable rate of return: While a savings account rate can fluctuate at any time, CD rates are generally locked in from the start. If you believe rates will decrease in the coming months, you may decide a CD is a better choice. Conversely, sticking with a savings account may be a wiser move in a rising rate environment.

Bottom line

One-year CD rates can vary significantly from bank to bank, with big banks often paying lackluster yields and online-only banks typically paying much higher APYs. It pays to shop around for the best rate and use a CD calculator to determine how much will be in your account when the CD matures in 12 months.

–Freelance writer Mallika Mitra contributed to updating this article.