Earn a competitive fixed interest rate on your savings.
A 12-month CD locks your money away for one year and lets you calculate exactly how much interest your savings will earn. However, if you need your money before the term is up, you’ll have to pay a penalty.
Popular choices for 1-year CDs
- Barclays Online CDs: 2.65%
- Discover CDs: 2.65%
- Ally High Yield CDs: 2.5%
What is a CD?
A certificate of deposit, or CD, is an account where you deposit a certain amount of money for an agreed period of time and earn a fixed rate of interest. You can choose how long you want to lock your money away, from as little as one month to five years.
CDs are different from a savings account because you can’t access the funds. If you do need to access the money before the term ends (known as maturity), you’ll likely need to pay a penalty.
Use our CD calculator
Use our calculator to find out how much interest you could earn over 12 months.
How do I earn interest with a CD?
A CD gives you a fixed interest rate in return for investing your money for a fixed amount of time. For example, if you opt for a 12-month CD you will lock away your funds for one year and you can’t withdraw the money. In return, your bank awards you a competitive interest rate that’s traditionally higher than a savings account.
You can elect to receive interest payments monthly or all at once after your CD reaches maturity. You can often elect which US bank account you’d like to receive your interest payments into.
How do I find the best CD for me?
Here’s a few important factors to consider when you compare certificates of deposit:
- The interest rate. The amount of interest applied to your CD will differ between various banks, and the difference can be substantial — shop around at a few different banks to find the best rate.
- Interest payment frequency. With a one-year CD you could choose to have interest earned paid to you monthly, semi-annually or when the account matures.
- Few or no fees. With the exception of the penalty charge for an early withdrawal, there should be no other fees applied.
- Minimum balance requirement. CDs have balance requirements that differ depending on the financial institution. Some only cater to higher deposits of $5,000 or more, while other banks allow for an account with a minimum balance of just $1,000.
Pros and cons of a 1-year CD
Pros
- You’re charged zero monthly fees. There are no monthly deductions from your savings to cover the cost of maintaining the account. This means your money works harder for you.
- It encourages you to save. You have an extra incentive to keep your savings inside the account by facing penalties for an early withdrawal. It’s kind of like forced savings.
- You could get a competitive interest rate. A 12-month CD provides you with a competitive interest rate to help build your savings faster. However, remember to compare your options before you commit to any product.
- It’s a low-risk investment. If you use an FDIC-insured bank, your investment is backed by the government up to $250,000.
Cons
- You can’t access your money until the CD matures. If you needed to withdraw your savings in order to cover an emergency expense, you’ll generally need to give 31 days’ notice and pay a penalty fee.
- There may be minimum balance requirement. Many banks, particularly those with competitive interest rates, will have a minimum balance requirement to open an account.
- You need to keep track of the account. If you want to withdraw your money after 12 months, you need to let your bank know — if you don’t, your money can be rolled over into a new 12-month CD, potentially at a lower interest rate.
How did we choose the best CDs?
Many financial institutions offer one-year certificates of deposit, but some accounts stand out from the rest. We narrowed down our list by searching for accounts that make it easy to start saving and offer incentives to lock your money away. To do this, we considered key factors like interest rate, convenience, interest compounding period, fees, early withdrawal penalties and renewal options.
Bottom line
If you’re looking for a secure way to store your money and earn interest over the course of a year, a CD is a useful savings option. However, if you want to add money to your account throughout the year or have access to it in case of an emergency, a traditional savings account might be a better fit.
Frequently asked questions
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