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Certificates of deposit are highly regarded as secure, low-risk investments that typically come with higher interest-earning potential than the typical savings account. However, this comes at the cost of liquidity, as you cannot withdraw money or earnings from a CD before maturity without penalty.
Fortunately, you may get the best of both worlds with a shorter-length 1-year CD. With the dramatic six-fold increase in average CD rates in 2022, it may be a great time to add a CD to your portfolio. To that end, we’ve compiled a guide of some of the best 1-year CD rates currently available below:
The Best 1-Year CD Rates
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Although this high-rated CD requires credit union membership, the application process is not particularly stringent, requiring a minimum deposit of $10, with a $4.95 fee that goes to either Habitat for Humanity, Goodwill, or the Marine Corps based on your preferences.
It’s hard to beat this CD’s staggering 5.50% APY, with a fairly accessible entry point of $1,000. This CD does not auto-renew like many other certificates, so it could make a great initial investment for anyone who’s new to building wealth with CDs.
- Highly competitive APY rate
- Fairly simple union membership process
- Terms range from 6 months to 60 months
- You need to apply for membership
- A separate savings account is required to obtain a certificate
- Physical branch locations are limited to Indiana
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If you’re willing to forego physical brand locations, the Salle Mae 1-year CD APY rate of 5.1% is certainly worth considering. This bank has a companion app, SmartyPig, which may users may find helpful for financial goal-setting and tracking.
With that in mind, Sallie Mae does have a higher minimum deposit requirement of $2,500. It’s worth mentioning that Sallie Mae also offers savings accounts without monthly maintenance fees.
- Competitive APY
- Intuitive user interface
- Compatible goal setting and tracking with SmartyPig companion service
- Limited customer service availability
- No physical locations
- No available checking accounts
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If you or a loved one happens to be part of the Connexus Credit Union network, this certificate with an impressive APY is certainly worth considering. The minimum deposit is a bit high at $5,000, but this credit union is known for a highly-rated mobile app, making it easy for investors to keep tabs on their earnings.
Note that CD’s automatically renew at maturity, with a 10-day period to withdraw funds or transfer your earnings.
- Convenient mobile app
- High APY rate
- Physical access via shared branches and ATM network
- Large minimum deposit may be prohibitive
- Membership is limited to union network
- Dividends are compounded quarterly
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If you’re looking to lock in a high CD rate but don’t have a lot to deposit, the Bethpage certificate might be a fitting option. This CD has a low minimum deposit of $50 with an impressive 5.00% APY.
While the credit union does require membership, it’s fairly easy to join, requiring a savings account with a deposit of at least $5. You also have the option to schedule virtual appointments with the bank if you’re not able to access the physical branches in New York.
- Low minimum deposit
- Easy union membership process
- Virtual appointments available
- Lower APY
- Requires a savings account
- Physical access is limited to New York
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If you’re looking to prioritize customer service, PenFed is a great option. These certificates are not a “money market” account despite the misleading name and holding an APY at 4.85%. With a strong mobile app and top-ranking customer service, this bank is happy to answer any questions you may have Monday through Friday.
The minimum deposit required is $1,000 with flexible terms starting at six months, ranging up to five years. You can choose between auto or manual renewal options upfront.
- Great customer service
- Convenient mobile app
- Daily compounding frequency
- Membership is required
- Savings account required to open a certificate of deposit
- Stringent withdrawal penalties
How Does A 1-Year CD Work?
A certificate of deposit is a fixed-term investment product that guarantees a set interest rate, over the course of determined term, or in this case, one year. Certificates of deposit often have minimum deposit requirements, which can range from $50 to several thousand dollars.
CDs tend to have higher APY rates than typical savings accounts, making them beneficial for bolstering your savings. However, this increased rate is provided in exchange for the lack of liquidity– You cannot withdraw your principal or earnings before the maturity date without penalties. CDs tend to roll over automatically at a term’s end unless redirected during the predetermined grace period.
A certificate of deposit utilizes compound interest and presents a predictable rate of return, as your APY rate is set or fixed with most CD types.
Currently, many CDs sit well above the national average interest rate of 1.76%. With these notably high APYs, it’s a great time to consider adding a CD to your portfolio.
How To Choose The Right 1-Year CD
Ready to invest in a 1-Year CD? Here are a couple of factors you should consider before starting your certificate:
- APY: Annual percentage yield or APY represents the amount of money you can expect to earn on your principal, taking into account compound interest. The higher the APY, the more you can expect to earn– though it’s important to factor in other considerations based on your financial situation.
- Minimum Deposit: Most certificates of deposit require a minimum deposit ranging from around a hundred to thousands of dollars.
- Membership Requirements: Some of the best CD rates are tied to credit unions that may present additional membership requirements than your typical bank.
- Branch or Customer Service Availability: With the rise of online banks and more remote credit unions, it’s important to note that you might not have as much physical access to customer service as you would with a local branch.
- Withdraw Penalties or Associated Fees: Ideally, you shouldn’t withdraw any money from your CD before the maturity date. However, it’s a good idea to know what sort of penalties you would be working with should you find yourself in a challenging situation.
Once you’ve found the right CD for your needs based on the above parameters, you’re free to open an account at your desired institution, fund accordingly, and sign off on the CD agreement to put it in action.
Pros And Cons Of Investing In 1-Year CDs
Investing in a single-year CD can provide you with the opportunity to save your money at a higher APY rate than a traditional savings account, without sacrificing too much liquidity as you might with a longer-term CD.
With that in mind, any certificate of deposit is designed so that withdrawing funds ahead of the maturity date can result in financial penalties– any money tucked away in your certificate of deposit should be thought of as inaccessible.
Note that CDs often automatically renew at maturity. You’ll want to keep an eye out for your maturity date and market rates to determine your action plan moving forward.
Alternatives To 1-Year CDs
If a certificate of deposit doesn’t work for your current financial situation, you can also consider utilizing high-yield savings accounts that provide more liquidity, with a higher APY than a typical savings accounts. Checking accounts can provide full liquidity, though they generally do not accrue interest.
Should you be looking for a longer-term savings solution, you could look into longer CD, or consider investing in savings bonds. Some savings bonds like I bonds combine fixed and inflation-adjusted interest rates, to protect your investment, adjusted every six months.
Frequently Asked Questions (FAQs)
What Is A 1-Year CD?
A 1-year certificate of deposit is an account where your investment is held at a fixed interest rate (in most cases) for the duration of one year. During the duration of your CD term, your money is not accessible and cannot be withdrawn without penalty.
Are 1-Year CD Rates Going Up?
CD rates are currently higher than average as of September 2023. However, they are subject to change based on the conditions set by your financial institution and the broader economy as a whole.
Will CD Rates Rise When Interest Rates Rise?
Usually, CD rates tend to reflect the broader economy– so when institutions like the FDIC raise interest rates, many banks are presumed to follow. However, nothing is guaranteed and the timing on rate adjustment will vary from one financial institution to the next.
Is A One-Year CD A Good Investment?
Selecting a beneficial investment for your portfolio is a highly personal decision and varies based on your individual situation. A CD can provide an excellent savings opportunity with very little risk, but your investment is not liquid, so you need to make sure you won’t need access to your funds until your certificate reaches maturity.
A certificate of deposit can make a great, low-risk investment depending on your financial needs. As of fall 2023, 1-year CD interest rates are particularly high which may make them a beneficial investment to add to your portfolio. However, remember that your investment strategy is highly personal, and should be treated and evaluated as such.