Top CD rates today: August 6, 2024 | CD rates are on the decline

CD rates continue to tumble after the Federal Reserve's latest meeting on July 31. Despite the Fed's decision to hold rates steady, banks are preparing for a potential September rate cut. However, the weak labor report for July has sparked recession fears, causing some economists to push for a cut sooner rather than later.

Some banks are already lowering their CD rates in reaction to the news. First Internet Bank of Indiana lowered rates across several terms. Among the changes are a reduction of its 1-year CD from an annual percentage yield (APY) of 5.26 percent to 5.15 percent, its 2-year CD from 4.76 percent to 4.61 percent, and its 5-year CD from 4.50 percent to 4.35 percent APY.

Not all certificates of deposit (CDs) are created alike, especially when it comes to rates of return. A CD that earns a competitive annual percentage yield (APY) can earn you hundreds, if not thousands, more in interest than one that merely earns the national average APY. As such, it’s worth shopping around for the best rate before committing your funds to a CD.

Currently, the leading APY across CD terms for the banks we monitor is 5.30 percent, which is available on a 6-month CD from Bask Bank. A minimum deposit of $1,000 is required. Many shorter terms are earning higher yields than longer ones in the current rate environment.

The table below shows top CD rates for the most common terms, as well as national averages and the amount you can earn in interest with a $5,000 deposit.

Today's best CD rates by term

Note: Annual percentage yields (APYs) shown are as of August 6, 2024. APYs for some products may vary by region.

N/A: Not available; Bankrate doesn’t track national averages for the 9-month CD term due to limited available data. Estimated earnings are based on the highest APYs and assume interest is compounded annually.

What banks offer the highest-paying CDs?

As seen in our table above, all of the top-paying CDs are available from banks and credit unions that operate mostly or entirely online. Online-only financial institutions are known for offering higher yields than big brick-and-mortar banks. Common reasons for this are:

• Relatively new online-only banks may pay highly competitive yields as a way to attract customers. (Conversely, established brick-and-mortar banks that don’t have a strong need for new deposits generally don’t offer high APYs.)
• Financial institutions operating entirely online don’t bear the cost of maintaining branches, and some may pass along the savings to customers through higher yields.

Whether or not they maintain branches, credit unions are commonly a source of high yields. This is because they’re not-for-profit institutions, so profits are distributed to members through dividends.

What the current rate environment means for CDs

Federal funds rate changes: To combat high inflation, the Federal Reserve raised its benchmark interest rate 11 times in 2022 and 2023. Before the string of rate hikes began in March 2022, the target range was at 0-0.25 percent, and it currently stands at a 23-year high of 5.25-5.50 percent.

What this means for deposit accounts such as CDs: Yields on competitive savings accounts and CDs tend to move in lockstep with the Fed’s interest rate moves. As such, many banks increase their yields when the Fed raises rates, and they lower yields when the federal funds rate drops. While the Fed has held rates steady since July 2023, top CD APYs ended up peaking in late 2023 and have since been decreasing gradually, as illustrated below.

How inflation factors in

The Fed has held its key benchmark rate steady since July 2023, due to inflation not slowing as quickly as it has in the past. Fed officials are aiming to bring the annual inflation rate down to 2 percent. While the consumer price index (CPI), a measure of inflation, has decreased significantly from its decades-high annual rate of 9 percent in June 2022, it’s currently at 3 percent.

“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” Powell said in remarks following the Fed’s latest decision not to change rates on July 31.

The current rate of inflation is a significant factor that affects what the Fed decides to do with rates. An increase in the federal funds rate can be good for savers — translating to higher APYs on many CD and savings accounts — while it can be bad for borrowers as interest rates tend to increase on loans.

Is now still a good time to open a new CD?

As of late, top CD rates are declining due, in part, to strong signals from the Fed that it plans to cut interest rates in September, if not sooner, and fears arising from recent market downturns. It's best to take advantage of still-high CD rates now while you still can.

"Now is the time to lock in attractive returns on CDs as the Federal Reserve is poised to begin cutting interest rates,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “The top-yielding CDs currently earn in excess of the inflation rate and savers have the ability to lock in that inflation-beating return for multiple years. If you have money you won’t need to touch for a period of time, now is a great time to consider a CD."

CD FAQs

• What are the pros and cons of investing in a CD?

  Available in various terms and types, CDs often earn higher APYs than traditional savings accounts. Many provide a guaranteed APY, so you know how much you'll earn throughout the term. When CDs are issued by banks and credit unions that are federally insured, your money is protected should the financial institution ever fail.

  A drawback of CDs, however, is they often tie up your money for the duration of the term, charging an early withdrawal penalty if you need access to the funds sooner. While some CDs offer higher APYs than savings accounts, they generally earn lower returns than higher-risk investments. If a fixed-rate CD doesn't keep pace with inflation, it reduces the purchasing power of your investment over time.

• How does a CD work?

  A CD is a type of savings account that often earns a guaranteed APY while holding your funds for a set term. Often, CDs earn higher yields than ordinary savings accounts, although if you withdraw your funds before the term ends, you'll likely incur an early withdrawal penalty.

  When the CD matures, you can redeem it for your initial principal investment, plus the earned interest. If you don't take action before the grace period ends, the CD will typically renew automatically at the APY currently offered by the bank.

• Is a CD a safe investment?

  CDs opened at banks covered by the Federal Deposit Insurance Corp. (FDIC), and at credit unions covered by the National Credit Union Association (NCUA), are federally insured up to $250,000 per depositor, per insured financial institution, per ownership category. This insurance guarantees your money will be safe, even if the bank goes out of business.

  CDs typically offer guaranteed returns, which makes it easy to calculate your future earnings. However, while CDs are safe, they may yield lower returns compared with riskier investments such as stocks and bonds. Also, early withdrawal penalties can sometimes eat into your principal. Overall, CDs can be a solid option if your goal is to preserve your capital while earning a moderate return.

Research methodology

Bankrate calculates and reports the national average APYs for various CD terms. Factored into national average rates are the competitive APYs commonly offered by online banks, along with the very low rates often found at large brick-and-mortar banks.

In June 2023, Bankrate updated its methodology that determines the national average CD rates. For the process, more than 500 banks and credit unions are now surveyed each week to generate the national averages. Among these institutions are those that are broadly available and offer high yields, as well as some of the nation’s largest banks.