Any time you're looking to open a certificate of deposit -- no matter the length of its term -- you need to make sure you can afford to part with your money for that long. There can be steep penalties for cashing out a CD before it comes due. So if you're not certain you're comfortable keeping your money tied up, a savings account may be a better choice. That way, you can access your money whenever you need to.
CDs come in a variety of terms, and for many banks, the longest amount of time you can open a CD is five years, or 60 months. You may be thinking of opening a five-year CD in 2024. But before you do, carefully consider the benefits and drawbacks.
The upside of opening a five-year CD
A CD will generally pay more interest than a savings account because you're committing to keeping your money where it is for a preset period. You also get the benefit of a guaranteed interest rate. It's for this reason that a five-year CD could especially make sense in 2024.
Inflation has been cooling over the past year. And because of that, there's talk of the Federal Reserve cutting rates in the new year.
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SoFi Checking and Savings 
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Citizens Access® Savings
Open Account for Citizens Access® Savings Member FDIC. | | Min. to earn $0.01 |
American Express® High Yield Savings
APY 4.25% Rate info4.25% annual percentage yield as of June 1, 2024 Open Account for American Express® High Yield Savings Member FDIC. | APY 4.25% Rate info4.25% annual percentage yield as of June 1, 2024 | Min. to earn $1 |
If the Fed goes this route, it could make personal loans less expensive to sign and credit card balances more manageable for those who owe money. But it could also result in lower interest rates across the board on savings accounts and CDs.
That's why you may want to lock in a five-year CD sooner rather than later. The generous rates banks are paying today are, frankly, not likely to last much longer. If you open a five-year CD in 2024, you can guarantee yourself a generous rate through 2029. By contrast, if you open a one-year CD in 2024, by 2025, you may find that rates are already much lower, making CDs less appealing on a whole.
The downside of opening a five-year CD
As mentioned, there can be costly penalties for cashing out a CD before it matures. At Capital One, the penalty for an early withdrawal from a five-year CD is six months' worth of interest.
So let's say you have a $10,000 CD paying 4% a year. That's $400 in annual interest, but it also means that withdrawing your money early will cost you $200. And to be clear, you'll face that penalty whether you cash out your CD two months early or two years early.
Meanwhile, a lot can happen in five years. You could fall in love, get engaged, and end up having a wedding to pay for. You could get a new job that requires you to relocate and absorb the cost. Or, you could have a baby, find yourself overwhelmed by the expense of child care, and end up desperate to tap your CD to cover your tab at daycare.
As such, you'll want to be really careful about opening a CD with a five-year term. While doing so may be a good way to snag a generous interest rate on your money without running the risk of losing out on principal like you would by investing, you run another risk. So think things through before moving forward with a CD that has you tying up your money for 60 months.
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FAQs
I want to lock in a great CD rate while I can
Are CD rates expected to go up in 2024? ›
Projections suggest that we may see no rate increases in 2024, and that the Fed might start dropping its rate later this year, according to the CME FedWatch Tool on June 11. If the Fed rate drops, CD rates will likely follow suit, though it's up to each bank and credit union if and when that occurs.
Should I get a 5 year CD now? ›
A five-year CD allows you to grow your savings at a guaranteed rate, but potential for gains aren't as high as riskier investments. With interest rates at a relative high, now may be a good time to consider putting some of your cash into a five-year CD. Then again, a five-year CD might not be right for every investor.
Will interest rates go up in 2024? ›
Will mortgage interest rates go up in 2024? Mortgage rates may continue to rise in 2024. High inflation, a strong housing market, and policy changes by the Federal Reserve have all pushed rates higher in 2022 and 2023.
Will CD rates go up in 2025? ›
CD rates should remain fairly attractive in 2025
Just as the Fed raised interest rates when inflation soared, the central bank is expected to start cutting interest rates now that inflation has cooled.
Should I lock in a CD now or wait? ›
Unlike traditional or high-yield savings accounts, which have variable APYs, most CDs lock your money into a fixed interest rate the day you open the account. That's why if you suspect that interest rates will soon drop, it can be a good idea to put money in a CD to preserve the high APY you would earn.
Can you get 6% on a CD? ›
Right now, the only financial institution offering a 6% CD is Financial Partners Credit Union. To become a member of the credit union, you must live, work or go to school in Orange County, San Diego County, Riverside County, Los Angeles County, the city of South San Francisco or the city of Alameda.
What is the best 5-year CD rate right now? ›
Best 5-Year CD Rates
- Farmers Insurance Federal Credit Union – 4.50% APY.
- Department of Commerce Federal Credit Union – 4.45% APY.
- The Federal Savings Bank – 4.45% APY.
- Crescent Bank – 4.40% APY.
- Colorado Federal Savings Bank – 4.35% APY.
- Lafayette Federal Credit Union – 4.32% APY.
- MYSB Direct – 4.31% APY.
The national deposit rate for 5-year CDs is 1.39%, up from less than 0.50% in June 2022. Yet many banks are offering rates well above that—the best 5-year CDs have annual percentage yields (APYs) that exceed 4%, and some 1-year CDs are offering APYs well above 5%.
Why would you invest in a long-term 5-year CD investment? ›
A certificate of deposit, or CD, lets you lock in a fixed interest rate for a fixed amount of time. That's an attractive option in today's market, where savers can find CD rates above 5%. This return far outpaces the current inflation rate, so your money is protected from being devalued.
The median projection for the benchmark federal funds rate is 5.1% by the end of 2024, implying just over one quarter-point cut. Through 2025, the FOMC now expects five total cuts, down from six in March, which would leave the federal funds rate at 4.1% by the end of next year.
How high could interest rates go in 2025? ›
Although you likely won't see the low rates buyers enjoyed during the pandemic, mortgage rates are still expected to dip in 2025. There's no surefire way to know how much of a drop to expect, but experts predict they could reach 6%.
What is the outlook for the US economy in 2024? ›
From 2024 through 2028, GDP will increase at an average annual rate of 2.2% per year, 0.5 percentage points higher than the baseline forecast. This scenario also results in higher long-term potential for the economy at 2.3%, compared to 1.7% in the baseline.
How high will CD rates go in 2024? ›
Key takeaways. The national average rate for one-year CD rates will be at 1.15 percent APY by the end of 2024, McBride forecasts, while predicting top-yielding one-year CDs to pay a significantly higher rate of 4.25 percent APY at that time.
What is the best CD rate for $100,000? ›
Best Jumbo CD Rates for June 2024
| BEST NATIONAL JUMBO CDs | | |
|---|
| CD Bank | 5.20% APY | $100,000 |
| Luana Savings Bank | 4.42% APY | $100,000 |
| All In Credit Union | 4.13% APY | $100,000 |
| Best non-Jumbo option: TotalDirectBank | 5.51% APY | $25,000 |
46 more rowsWhy Trust Us? As of June 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.
What is the rate forecast for 2024? ›
The central bank's "terminal rate" for 2024, or the rate at which its benchmark fed funds rate will peak, went up to 5.1%, equivalent to a target range of 5%-5.25%. That means that the Fed is only forecasting one quarter-point rate cut from the current target range of 5.25% to 5.5%.
