A five-year certificate of deposit can be a great way to earn a guaranteed return on money you won’t need in the near future. Banks have been dropping rates across various CD terms for the last few months, but with inflation still above the Federal Reserve’s target, rate cuts aren’t expected to happen in the next month or so. That means savers have more time to lock in a high-rate CD.
Right now, the average APY for a five-year CD is 3.95%, but some CD rates are as high as 4.60%, based on the banks we track at CNET.
“If someone is looking for a guaranteed interest rate, stability of principal and not concerned with liquidity, then now is probably a good time to lock in a five-year CD,” said Misty Garza, a financial advisor at Bogart Wealth.
What is a 5-year CD?
A five-year CD is the longest-term certificate of deposit most banks offer. It’s a low-risk savings account that lets you earn a return at a fixed APY, in exchange for keeping your money in the account for five years. To compensate for tying your funds up for that period, banks often pay a higher rate than they do for shorter terms.
A five-year CD usually offers the highest rate of return of any CD, though now, shorter terms like one-year CDs offer higher rates. Experts say this is a sign that savings rates have peaked and are unlikely to climb much higher, especially since the Fed paused rates for the third consecutive time in December.
Like most traditional CDs, you’ll likely pay an early withdrawal penalty if you take out money before your CD term ends. The fee is usually a few months’ worth of interest. And because five-year CDs are generally the longest terms offered, it’s important to make sure you won’t need the money before then. Otherwise, you may be on the hook for up to a year’s worth of interest earned -- even if you haven’t earned that much yet.
| Bank | APY | Min. deposit |
|---|---|---|
| MYSB Direct | 4.31% | $500 |
| Bread Savings | 4.15% | $1,500 |
| BMO Alto | 4.60% | $0 |
| First Internet Bank of Indiana | 4.59% | $1,000 |
| First National Bank of America | 4.55% | $1,000 |
MYSB Direct
- APY APY = Annual Percentage Yield.
- 4.31%
- Min. deposit
- $500
M.Y. Safra Bank Direct is a full-service bank that offers a range of checking, savings, money market and CD accounts depending on your needs. MYSB Direct offers competitive rates on most of its CD accounts, and requires a minimum opening deposit of $500.
You can visit the local branch if you live in New York City or speak with a representative over the phone during business hours. Accounts can also be managed online.
M.Y. Safra Bank Direct is a full-service bank that offers a range of checking, savings, money market and CD accounts depending on your needs. MYSB Direct offers competitive rates on most of its CD accounts, and requires a minimum opening deposit of $500.
You can visit the local branch if you live in New York City or speak with a representative over the phone during business hours. Accounts can also be managed online.
Bread Savings
- APY APY = Annual Percentage Yield.
- 4.15%
- Min. deposit
- $1,500
Bread Savings offers high-yield CDs with terms ranging from one to five years. The minimum deposit requirement is $1,500. But we like that it doesn’t charge any monthly maintenance fees. Bread Savings is an online bank, but can be reached at 833-755-4354.
Bread Savings offers high-yield CDs with terms ranging from one to five years. The minimum deposit requirement is $1,500. But we like that it doesn’t charge any monthly maintenance fees. Bread Savings is an online bank, but can be reached at 833-755-4354.
BMO Alto
- APY APY = Annual Percentage Yield.
- 4.60%
- Min. deposit
- $0
BMO Alto is the online arm of BMO, offering competitive CD rates with no minimum deposit requirements and terms ranging from six months to five years. BMO Alto pays interest on CDs monthly.
However, BMO Alto doesn’t offer specialty CDs or a designated mobile app to manage your account. Instead, you’ll need to use the BMO Alto website. Since BMO Alto is separate from BMO Bank, you can’t get help with your account at a physical location, but you can call 855-266-8100 for help.
BMO Alto is the online arm of BMO, offering competitive CD rates with no minimum deposit requirements and terms ranging from six months to five years. BMO Alto pays interest on CDs monthly.
However, BMO Alto doesn’t offer specialty CDs or a designated mobile app to manage your account. Instead, you’ll need to use the BMO Alto website. Since BMO Alto is separate from BMO Bank, you can’t get help with your account at a physical location, but you can call 855-266-8100 for help.
First Internet Bank of Indiana
- APY APY = Annual Percentage Yield.
- 4.59%
- Min. deposit
- $1,000
First Internet Bank of Indiana offers high-yield CD terms ranging from three months up to five years. The rates are competitive, but it has a minimum deposit requirement of $1,000. You can open an account online or via the mobile app, and interest compounds daily and credits monthly. First Internet Bank of Indiana doesn’t offer specialty CDs, however, and its early withdrawal penalty for high-yield CDs is up to 360 days of interest -- which is on par for long-term CDs.
First Internet Bank of Indiana offers high-yield CD terms ranging from three months up to five years. The rates are competitive, but it has a minimum deposit requirement of $1,000. You can open an account online or via the mobile app, and interest compounds daily and credits monthly. First Internet Bank of Indiana doesn’t offer specialty CDs, however, and its early withdrawal penalty for high-yield CDs is up to 360 days of interest -- which is on par for long-term CDs.
First National Bank of America
- APY APY = Annual Percentage Yield.
- 4.55%
- Min. deposit
- $1,000
First National Bank of America offers some of the best CD rates available with terms ranging from 1 to 7 years. You can buy a CD online and are not limited to visiting one of the Michigan branch locations. Just make sure you won’t need to access the money before maturity; this bank charges some of the steepest early withdrawal penalties we’ve seen.
First National Bank of America offers some of the best CD rates available with terms ranging from 1 to 7 years. You can buy a CD online and are not limited to visiting one of the Michigan branch locations. Just make sure you won’t need to access the money before maturity; this bank charges some of the steepest early withdrawal penalties we’ve seen.
Is now a good time to lock in a 5-year CD?
Five-year CD rates are high but have started to dip for some banks, while others have remained unchanged. Right now, the most competitive rates are hovering around 4.50%. While you can find better rates for select short-term CDs right now, a five-year CD offers a competitive edge.
“The advantage of locking in a long-term CD in this current environment is that you will be protected when interest rates start to decrease,” Garza said. “The only real disadvantage to a longer-term CD right now is the potential for rates to continue to climb. I would say most investment professionals believe we are at the tail-end, though.”
Even if rates continue to inch up, trying to time when to lock in a CD at the absolute highest rate can mean earning less on your savings. The difference in a few basis points may not be worth the tens of extra dollars in interest you might earn -- unless you’re depositing tens of thousands.
For example, here’s how much you could earn on a $1,000 deposit if you open a five-year CD with a 4% APY versus if rates go up to 5% for some banks.
| APY | Interest earned | Balance |
| 4.00% | $216.65 | $1,216.65 |
| 5.00% | $276.28 | $1,276.28 |
In this example, if you wait and CD rates rise, you’d earn only $59 in additional return on your savings over five years. Unless you have a large amount to deposit, waiting likely won’t make you much more money.
How to choose a 5-year CD
Most banks offer five-year CDs, but online-only banks usually offer the best rates. Every bank has different requirements. Some require a minimum deposit, while others have a higher APY. Others may have hefty withdrawal penalties that can cost a lot if you need to take the money out unexpectedly.
Here are a few things to look for when choosing a CD:
- A competitive fixed interest rate over five years -- regardless of the rate environment
- A comfortable minimum deposit with minimal fees
- A low early withdrawal penalty fee in case you need to access the money
- A financial institution that’s FDIC- or NCUA-insured up to $250,000 per person, per account category
Factors to consider before opening a 5-year CD
When you open a five-year CD, you should be willing to keep your deposit locked away for a few years to earn interest. But there are a few other factors to take into account.
- Early withdrawal penalties: Some banks have a hefty withdrawal penalty if you pull out your money before the CD matures. Consider a five-year CD with lower penalties.
- Potential for lower earnings: You’re locking in the CD rate for five years. If rates rise, you may be stuck with a lower rate, and, in return, earn less interest than if you locked in a higher rate.
- Less flexibility: You won’t have access to the money for five years unless you pay an early withdrawal penalty -- which is up to a year of interest for some banks that offer this term.
- How much other accounts are paying: You might earn more interest in other savings or investment accounts, depending on your goals.
Other savings options to explore
Over the past year, interest rates have climbed quickly, making CDs a good investment for some, Garza said. But most experts believe CD rates are as high as they’ll go, especially since the Fed is holding rates steady for now. So if you’re interested in locking in a high five-year CD term, now’s the time to act.
But if you’re not ready to deposit a lump sum of money for years, there are other interest-earning savings options that may be a better fit for your goals.
“Interest rates are high, and it’s a good time to be a saver, but it’s not all or none,” said Marguerita Cheng, chief executive officer at Blue Ocean Global Wealth. “You can have a checking and savings account, but you can also have a CD, especially if the terms and minimums fit your needs.”
High-yield savings and money market accounts
Savings options with variable rates, like high-yield savings accounts, offer more flexibility -- you can deposit and withdraw money regularly without paying an early withdrawal penalty as you would with CDs. A high-yield savings account or a money market account are good options for storing emergency savings or money you need quick access to. You’ll still earn interest but won’t lock in a fixed rate. That means when rates drop, your savings APY likely will, too.
Bump-up CDs
Some banks offer bump-up CDs, which let you adjust your APY once (or sometimes multiple times) to lock in a higher APY if rates rise during your CD term. This specialty CD may come in handy if you’re worried about missing out on better rates in the coming weeks. However, bump-up CDs generally have lower rates compared to traditional CDs.
So even though you’ll have a chance at a better rate, you may start with a below-average APY. And you’ll still pay an early withdrawal penalty if you take the money out before the term ends.
CD ladder
If you want a guaranteed fixed rate but want to get your money back sooner to take advantage of higher rates, consider a CD ladder. Here’s how it works.
You’ll spread your deposit across several CDs –usually one-, two-, three-, four- and five-year CD terms -- so you’ll have money coming due at regular intervals. A ladder can be beneficial if there’s a chance you’ll need funds periodically or you think rates will continue to rise. You can also apply this strategy to shorter-term CDs.
Series I bonds
Series I bonds are another safe investment option and are government-backed. I bonds are currently at 5.27% until April 2024. If you apply for one before then, you can lock in this rate for the next five months. But after that, the new rate may drop significantly.
An I bond requires you to lock up your money for at least one year, but you should try not to touch your funds before five years, or like a CD, you’ll forfeit some of the interest you earned.
Treasury bills
Treasury bills are similar to CDs, but there are some key differences. Both low-risk options require a one-time deposit and offer limited liquidity. However, you must get a Treasury bill through the US Treasury Department, and you can’t withdraw funds unless you transfer it to a broker. On the other hand, CDs let you withdraw your money, but you’ll pay an early withdrawal fee if you do so before the term ends.
Right now, average five-year CD rates are nearly on par with Treasury bills, which have a 4.25% APY as of Feb. 14. Though Treasury bill rates update daily, rates have been hovering around 4% for months. While both are similar, you may have more options and flexibility depending on your goals for the money you’re setting aside.
How to open a 5-year CD
When you’re ready to open a CD, most banks let you open your account online. If a physical branch is available, you can also apply in person. You’ll need to provide some of your personal information, such as your full name, Social Security number or Taxpayer Identification Number, physical address and contact information.
When you complete the application, you’ll need a one-time deposit. Before opening your account, use a CD calculator to determine the return you want and choose your deposit amount.
Lastly, check with the bank to see how you can make the deposit -- most require an electronic transfer and don’t accept cash.
FAQs
You’ll pay an early withdrawal penalty if you withdraw money before your CD matures. You can forfeit between 180 and 365 days’ worth of interest on a five-year CD. The exact amount depends on your bank.
Yes. You’ll have a fixed interest rate for your CD term if you choose a traditional CD. When your CD matures, you can roll the money into a new one with a better interest rate.
Unless you’re buying a CD offered by a brokerage account, you can’t lose value in a CD. CDs bought through a bank or credit union are insured by the Federal Deposit Insurance Corporation or National Credit Union Administration for up to $250,000 per person, per institution. This insurance also covers any interest compounded, making a CD a low-risk investment.
CD terms typically vary from three months to five years. Generally, CDs with longer terms pay higher interest rates. Other safe savings accounts to consider include high-yield savings accounts and I bonds.
Methodology
CNET reviews CD rates based on the latest APY information from issuer websites. We evaluated CD rates from more than 50 banks, credit unions and financial companies. We selected the CDs with the highest APY for five-year terms from among the organizations we surveyed and considered rates for shorter terms if five-year terms were identical or unavailable.
Banks we reviewed
Alliant Credit Union, Ally Bank, America First FCU, American Express National Bank, Barclays, Bask Bank, Bethpage, BMO Alto, Bread Savings, Capital One, CFG Bank, CIT, CommunityWide Federal Credit Union, Connexus Credit Union, Discover, EverBank, First Internet Bank of Indiana, First National Bank of America, Forbright, Lending Club, Limelight Bank, Marcus by Goldman Sachs, MYSB Direct, NexBank, Popular Bank, Quontic, Rising Bank and Synchrony.
This article includes some material that was previously published on NextAdvisor, a CNET Money sister site that was also owned by Red Ventures and which has merged with CNET Money. It has been edited and updated by CNET Money editors.
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