Certificates of deposit (CDs) offer interest on your money in exchange for locking up your funds for a set period of time. CD terms can range from one month to several years, and in many cases, they can offer better yields than high-yield savings accounts and money market accounts.

That said, CD rates can vary depending on a few factors, including the financial institution, the type of CD, and your chosen term. So, what is considered a good CD rate, and how can you maximize your return? Here's what you need to know.

What is considered a good CD rate?

One way to determine whether or not a CD rate is good is to compare it to the national average. Here's a quick look at the current averages for common CD terms:

CD rates are currently at a 10-year high due to the Federal Reserve raising interest rates to combat high inflation. As the Fed increases its federal funds rate, many financial institutions hike interest rates on both loans and deposit accounts. As a result, consumers are incentivized to spend less and save more.

For context, here's the average rate for a 12-month CD over the past decade:

That said, national averages don't necessarily tell the full story on CD rates. While many banks offer higher yields in response to a higher Fed rate, others still offer rock-bottom rates.

In particular, some of the best CD rates currently available exceed a 5% annual percentage yield (APY).

Which factors determine CD rates?

There are several variables that influence CD rates. Here's what to keep in mind as you consider whether a CD is right for you:

• Federal funds rate: As previously mentioned, CD rates at many banks are influenced by the federal funds rate. While the Fed hiked its interest rate several times starting in early 2022, the rate hasn't budged since July 2023. What's more, the federal agency is expected to begin cutting the rate in 2024, which will likely result in lower CD rates.

• Bank policies: Banks use customer deposits to provide loans and improve profitability, but not all banks have the same strategies. Large banks, which may have sufficient capital and revenue from multiple sources, are typically less likely to offer high CD rates than online banks and other smaller financial institutions that want to attract more deposits.

• Type of CD: There are many different types of CDs from which you can choose. Some CDs may offer extra features, such as no early withdrawal penalty or a chance to get a higher interest rate after your initial deposit. However, these CDs typically offer lower APYs compared to standard CDs.

• Term length: CDs offer fixed interest rates, but those rates can vary depending on which term you choose. Traditionally, longer-term CDs offer higher yields, but when market rates are on the rise, short-term CDs may offer higher returns.

Keep in mind that setting CD rates isn't an exact science, and each bank has its own approach. As a result, you'll typically see a variety of rates from different banks, even for the same terms.

How to get the best return on a CD

The best way to ensure you get the best return on your savings is by shopping around and comparing CD rates from multiple banks and credit unions. As you consider your options, here are some features to keep in mind:

• APY: The annual percentage rate (APY) is typically the advertised rate, and it's a more accurate representation of what you'll earn in a year than the interest rate because it accounts for compound interest.

• Term: While you may be able to get a higher rate with a longer CD term, it's important to consider when you might need access to the cash you're depositing. In other words, focus on getting the best rate based on your time horizon.

• Minimum deposit: Depending on the bank, the minimum deposit for a CD can range from $0 to $10,000 or more. As a result, you'll want to compare CDs that are accessible to you based on how much money you can set aside.

• Withdrawal penalties: Even if you don't plan on withdrawing any money before your account matures, you'll still want to understand how you'll be penalized if things don't go as planned and you need to withdraw your money.

Note that if you're not comfortable with locking up your funds for several months or years to earn a higher rate, you could consider a no-penalty CD or high-yield savings account, which provides more liquidity. However, avoid using standard CD rates as your reference point if you're pursuing those options.

The bottom line

CD rates are the highest they've been in a decade, but they're expected to decline over the next year or two. If you have some cash you can afford to live without for a while, opening a CD can be a great way to lock in a fixed interest rate and get a solid, safe return on your money.

Before opening a CD with your bank or credit union, though, take some time to shop around and compare CD rates from multiple banks to ensure you get the best yield based on your needs and goals.

Frequently asked questions

Is 5% good for a savings account?

Yes, many of the top high-yield savings accounts offer APYs that exceed 5%. Unlike CD rates, however, high-yield savings rates are variable, so they'll fluctuate regularly, and there's no way to lock in a higher rate.

Where can I get 7% interest on my money online?

There are no savings products that currently offer a 7% APY without restrictions, though some may offer higher rates on smaller deposits. Keep in mind, though, that CD rates are constantly changing due to a variety of factors, so even if you have a good rate right now, consider shopping around before your account matures to determine whether you can earn more elsewhere.