CDs may seem profitable if you’re looking for a way to make your money work for you. With the Fed increasing rates continually, you might think you can find 6% CD rates.
I don’t want to burst anyone’s bubble, but the days of 6% may be gone, but some options will get close to that rate, helping your money grow.
Can You Get 6% CD Rates Today?
6% CD rates haven’t been available for decades. While interest rates have increased in the last couple of years with the changes the economy experienced, most banks don’t offer CD rates even close to 6%.
Who Has the Highest-Paying CD Right Now?
Click on each term length below to discover which banks and credit unions are offering the highest CD rates.
Note: Rates last updated December 05, 2023. May vary by region.
Best Alternatives to a 6% CD Rate
If you want higher returns or don’t want to tie your money up long-term, a high-yield savings account or a fixed annuity are the best alternatives to a 6% CD.
1. High-Yield Savings Accounts
High-yield savings accounts that interest rates that are near or go above and beyond 6% more frequently than CDs, though there are plenty of stipulations that limit the amount you can actually earn the highest rate on. In these cases, it is usually better to take a lower interest rate on a larger sum of money.
Here are some of the best high-yield savings accounts on the market today as a great alternative to 6% CDs:
UFB High Yield Savings
Valley Direct High Yield Savings
Yield Pledge® Online Savings
|Mission Valley Bank
High Yield Savings Account
Bask Interest Savings
|up to 5.05% APY||$100|
2. Fixed Annuities
Fixed annuities are insurance contracts, not bank products. They can provide ‘income for life’ or a guaranteed rate of return on your contributions.
You can find annuities that pay out in a year or deferred annuities that give your money more time to grow before distributing it. In addition, annuities earn interest tax-deferred, and you can choose a lifetime annuity or an annuity for a certain number of years.
Annuities are similar to CDs because you tie up your contributions for the predetermined term, but you receive payments according to the agreement, which CDs don’t offer.
Fixed Annuities vs CDs
- Rates: Fixed annuities and CD rates are similar, but you’ll typically earn more on a fixed annuity, depending on where you get it. CD rates may be as high as 4.65%, on the other hand, annuities often have rates of 5% or higher.
- FDIC Insurance: Annuities don’t have FDIC insurance, which is a big difference between annuities and CDs. For example, if a bank went out of business and you had a CD, the FDIC insurance would reimburse you for the lost money. Annuities aren’t FDIC insured, but each insurance company must be part of a state insurance guarantee association which may provide similar protection. Each state has different laws, so know your state’s laws before investing.
Common CD Term Lengths
CDs have varying terms, and as I said earlier, the longer the term chosen, the higher the interest rate. So, for the examples below, let’s assume you deposited $2,500 in a CD. Here’s how the various terms would differ:
- 3-Month: The average 3-month CD pays 3.25%, which means you’d earn $20.07 in interest in three months. This increases your deposit to $2,520.07. You can withdraw the funds or reinvest them to compound your earnings.
- 6-Month: You can easily find 6-month CDs paying 3.5% interest. So while you must tie your funds up for three more months, it might be worth it because you’ll earn $43.37 in interest. This makes your balance $2,543.37 after six months. This is slightly more than if you reinvested a 3-month CD into another 3-month CD at the same rate.
- 12-Month: You can usually find 12-month CDs paying APYs of around 4.25%. You must keep your funds deposited for an entire year, but you’ll turn your $2,500 into $2,606.25. Keeping your funds deposited for a year makes more sense than taking the 6-month CD and reinvesting the funds unless you think rates will increase dramatically in those six months.
- 24-Month: 24-month CDs require you to tie your money up for two years, and the average rate is around 4.4%. The difference doesn’t seem like much, but it’s more than double what you’d earn in a 1-year CD. So over two years, you’d earn $224.84 in interest.
- 36-Month: If you invest your funds in a 3-year CD, your rate will only increase to about 4.5%. While not a huge jump in interest rate from 24 to 36 months, you would still receive $352.92 in interest.
- 48-Month: Depending on where you look, you can find 4-year CDs for 4.5% to 4.65%. If you’re lucky enough to find a CD paying 4.65%, you’ll turn your deposit into a balance of $2,998.45.
- 60-Month: Tying funds up for five years can be hard, especially when the funds aren’t liquid. But if you have a large goal, like buying a house, it can be an excellent way to safeguard the funds so you don’t accidentally spend them. 5-year CD rates taper off with the 4-year rates, so you’ll usually find rates between 4.5% and 4.65%, leaving you with a slightly higher return only because of the longer term. So you’d have a balance of $3,137.88 at the end of the term.
- 72-Month: Not many banks offer 72-month CDs, but if you find one, the rates usually top out around 4.75% leaving you with a return of $3,283.79. So again, not quite 6%, but getting closer!
How Is The Interest Compounded Over This Time?
Most CDs compound monthly, but they may pay interest in different increments. Monthly compounding means your balance changes monthly, and your interest earns interest. The more frequent the compounding, the more you’ll earn.
Frequently Asked Questions
6% CD rates are hard to come by. Most investments don’t pay 6% today unless you risk your money in the stock market.
Does inflation affect CD rates?
CD rates are fixed, so if inflation increases, your CD will be worth less than it was when you invested the funds. This is a risk of CDs and why you might consider shorter-term CDs to take advantage of a higher rate upon maturity.
Are CDs a good choice?
CDs are a good choice for the money you want to protect from spending. The funds aren’t liquid for the term, but if you know your timeline, you can choose a CD that lines up with your goals, so you have the funds when you need them but don’t have access.
What happens if you remove your money from a CD early?
Many banks charge a penalty worth three months of interest if you withdraw your funds early. But it varies by bank, so always ask.
Will CD interest rates go down next year?
Experts predict the Fed will increase rates again in 2023, which means CD rates will rise again. If that happens, you might not be far from the 6% CD rate you desire.
How will CD rates change at the end of the year?
CD rates will likely remain steady for the remainder of the year unless the Fed steps in and changes interest rates again.
How do CD accounts differ and compare to savings accounts and money markets?
CDs require you to tie up your funds, but savings and money market accounts do not. So the main difference is liquidity. But in exchange for the liquidity, you’ll likely earn lower interest rates. So you’ll have to determine what means the most to you, liquidity or higher interest.
Are there any 4% CD rates?
Sallie Mae offers CD rates between 4 and 5%, so it’s closer to a 6% CD, but not quite. The minimum opening deposit is $2,500, with varying terms between 6 and 60 months. The longer the term you choose, the higher the rates you may receive.
Do any banks give 7% interest rates on CDs?
7% is an almost unheard-of interest rate on almost any bank account. To get those returns, you must take some risk and invest in the stock market or other riskier investments.
The Bottom Line
CDs can be a safe option to make your money grow. Even if you can’t find 6% CD rates, plenty of high-interest-rate CDs are available to help you grow your investments.