Contributor, Benzinga
December 6, 2023
BZ

Quick Look at the Best 5-Year CD Rates:

  • Best Overall: Crescent Bank
  • Best Overall 5-Year CD Rates: Live Oak Bank
  • Best for Low Minimum Deposit: Security Service Federal Credit Union 
  • Best for Flexible Maturity Options: Pentagon Federal Credit Union (PenFed)
  • Best for Higher APY: Popular Direct
  • Best for No Minimum Balance: Barclays

Certificates of deposits (CDs) might seem confusing, but the right research can provide substantial benefits for the future. A CD is a type of savings account that can improve your investment portfolio while also safeguarding your initial deposit. It’s an excellent, low-risk way to start building for the future. Various types of CDs such as standard CDs and step-up CDs have multiple term length options that appeal to your different needs. CD account deposits should not be withdrawn from the account until after reaching maturity because early withdrawal results in penalties. Review the different 5-year CD rates to see which option would work best for you. 

Best Overall: Crescent Bank

Crescent Bank offers a wide variety of certificates of deposit, allowing you to start with something as short as 12 months, extending to 60 months. With Crescent, you will also enjoy a fixed interest rate, automatic renewals, no service or maintenance fees, and online access at any time. You can open one of our CDs starting at $1,000 and with our annual percentage yield (APY) you can watch your money grow. These rates apply to new money online. Member FDIC.

12-month CD4.85%
18-month CD4.65%
24-month CD4.45%
30-month CD4.30%
36-month CD4.25%
48-month CD3.95%
60-month CD3.90%
Rates as of: 4/5/24

Best APY: Live Oak Bank

Live Oak Bank is a digital bank that functions within the U.S. The company provides 5-year CD rates at 2.75% APY. The term APY stands for annual percentage yield and indicates the rate of return that’s earned on investment within a year. Live Oak Bank requires a minimum deposit of $2,500 and accepts a maximum deposit of $250,000. Once an account fully matures, an individual is able to withdraw the funds. If not previously set up to do otherwise, the account will automatically renew with the same terms and current version of the interest rate. Customers have 10 days after the maturity date to decide whether to withdraw funds. 

In terms of fees, the company does not have monthly maintenance fees and provides no online banking fees. However, the company does have a relatively steep withdrawal fee of 180 days of simple interest. The application is only allowed for personal accounts. 

Best for Low Minimum Deposit: Security Service Federal Credit Union

The Security Service Federal Credit Union was created to serve the United States Air Force in the 1950s. The company now has a less stringent barrier to entry where individuals can obtain CDs or certificates by meeting membership requirements. Banks and CDs offer similar products, but they are often called different names. For example, credit unions use the term certificates while banks generally use the term CD, and credit unions may pay interest and dividends on certificates.

Security Service Federal Credit Union provides a wide range of certificates/CDs with varied term lengths between three months and seven years. For a 5-year CD rate, the company requires a minimum $500 deposit and provides a 2.4% APY. The company also has dividend rates that begin at 2.37% for an initial $500 deposit. 

However, the company has an increased APY that begins at 2.45% for deposits that are more than $25,000. When examining the APY rates and dividend rates for 5-year CDs, note how the amount of the initial deposit impacts the APY. In general, larger deposit amounts have increased dividend rates and APYs. 

The company has no account fees for the certificates. The withdrawal fees are not clearly mentioned, but they are charged if you withdraw before maturity. Security Service Federal Credit Union does not allow additional deposits, so make sure you’ve figured out how much you would like to place into a particular CD. The company has a relatively slim reach but think about becoming a member if you live in Colorado, Texas or Utah. 

Best for Flexible Maturity Options: Pentagon Federal Credit Union

Pentagon Federal Credit Union, also known as PenFed, allows non-military individuals the opportunity to obtain membership. Previously, the company had only served members of the military and veterans. Its money market certificates are viewed as the credit union equivalent of CDs. The company offers a 5-year CD rate of 2.75% APY. It requires a minimum $1,000 deposit. Deposits are protected by the NCUA. Dividends are posted monthly to the accounts. 

The credit union provides flexible maturity options. A CD can be transferred to another account within the PenFed Credit Union or rolled over into another certificate. The certificates can also be mailed as checks or transferred. However, these options must be selected before a certificate’s maturity. 

The early withdrawal fee depends on when an individual elects to withdraw. For example, if an individual decides to withdraw early during the first year then the penalty will be the previous 365 days of dividends earned. 

Popular Direct has products that are offered through Popular Bank. The 5-year CD has a 2.85% APY and a 2.811% interest rate. The company provides both mobile phone and desktop availability. Deposits are insured by the FDIC. The website offers a helpful CD calculator intended to guide buyers about how much they can potentially earn with a CD. 

One drawback is that the company requires a higher-than-usual minimum deposit of $10,000. Its CDs also include an early withdrawal fee, but the fee is not clearly specified. Its automatic withdrawal period has a 10-calendar day grace period after maturity date. You can apply online with a form of identification and a bank account to fund your CD account. 

Best for No Minimum Balance: Barclays

Barclays is an online bank based in Delaware. It requires no set minimum balance to open an account. This feature differs from other CD accounts and increases the amount of flexibility an individual can experience when making an initial deposit. However, the account must be funded within 14 days from opening. To earn interest, the account must be funded enough to receive at least $0.01. The company offers 2.55% APY and an interest rate of 2.52%. Interest is compounded daily, and the website offers a CD calculator for interested consumers. The deposits are insured by the FDIC. It’s possible to face withdrawal fees, but the exact fees are not published. 

Features to Look for in a 5-Year CD

When examining 5-year CDs and CD rates, think about important features such as customer care, additional fees and APY rates. Research available options to more fully understand how the offered CDs compare.

APY rates

Examine the APY rates in combination with factors such as the amount of your initial deposit. The amount of your initial deposit has the potential to make other CDs provided by alternative financial institutions more attractive. For example, certain companies offer higher APY rates for larger initial deposits. 

Minimum fees

Before buying a CD, examine the possible fees. Additional fees such as early withdrawal fees could change your perspective on certain offerings. Although unusual for CDs, make sure there are no hidden fees such as monthly maintenance fees that could potentially drive up the cost.

Customer service

Research the strength of each company’s customer service. Examine customer reviews placed on different websites to have a better understanding of how certain companies treat current customers. Be sure to examine both the positive and negative reviews to have a broader understanding of what customers previously experienced. 

Flexibility 

When looking for features, examine if certain CDs have flexible maturity options. Varied maturity options assist individuals in selecting different courses of action such as mailing checks or rolling current a CD into a new one. 

How to Apply for a CD

Before applying, research CDs to get an idea of which timeline would work best for you. Keep in mind that the funds placed into a CD will remain in the account for a set amount of time. Budgeting and planning align you for success when applying for a CD.

Know your options

It’s recommended to research different types of CDs and their timelines to have a better perspective about APYs and fees. 

CDs provide multiple options such as high-yield CDs and bump-up CDs. As the name suggests, high-yield CDs often yield more interest on funds deposited into the account. Bump-up CDs allow owners of the accounts to have the ability to increase the interest rate. However, the increase in the interest rate paid is usually only allowed to happen once within the duration of the CD.

When examining CDs, you might want to speak with a financial professional to have a more guided understanding of the available options. 

Select CD terms

CD terms range between three months and 10 years. However, it’s more common to see term lengths between three months and five years. Typically, five years is viewed as a long-term CD. CDs with longer terms yield higher interest. However, longer-term CDs could potentially prove difficult to navigate if the funds placed into the account are needed before the end of the term length. 

When applying for a CD, keep in mind the amount of financial flexibility available to you. Avoid investing funds that you could potentially need if you are unsure about the future. 

Think about how you would like to open the account. Some CD accounts allow individuals to open a joint account with another person like a spouse. Joint CD accounts could prove beneficial for people who share finances. 

Decide on your application process

CD accounts can be opened using multiple application processes. Individuals are able to create a CD account by going to some banks or credit unions in person. Certain CD providers allow people to create accounts using an online application or on the phone. 

The exact timeline for the application process varies, so take your time when entering information. For example, certain applications often require less than 30 minutes to finish. Ask questions and clarify with a customer service representative to more fully understand certain requirements. It’s possible that entering incorrect information could slow the speed or completely halt your application. 

Have additional Information available

Ensure that your additional personal information is available in case any previously unasked questions come to light. When starting the application process, a CD account provider might ask about contact information, your address and your tax identification number. Keep the information in an accessible location when following the application process to more efficiently answer requests for more details. 

How you can Improve Your Finances

Improving your finances is an excellent way to eventually obtain financial freedom. Understanding your spending, being aware of your debt ratios and making a plan can help on your journey. When in doubt, think about speaking with a financial professional to help improve your finances. 

Understand your spending 

Analyze your spending to have an idea about your current financial habits. One way to have a more streamlined understanding of your finances is to analyze your debt-to-income ratio. The debt-to-income ratio points out how much you earn in contrast to how much you spend per month. Typically, it’s better to have a lower ratio because it indicates that you have a smaller amount of debt. Think about analyzing additional details such as your credit card bills and personal loans when accounting for how much you spend monthly. 

Pay off debt 

Paying off your debt helps to boost your credit score and improve your debt-to-income ratio. If you begin taking on too much debt, think about talking with a financial professional to understand if certain options such as debt consolidation are right for you. 

Analyze your credit card bills to search for any forgotten automatically renewed services. For example, certain subscription services are automatically renewed after an extended time. These items have the potential to add up if the subscriptions are forgotten and allowed to continuously renew.

Create savings 

When trying to save, think about setting aside a predetermined amount of your income on a weekly or monthly basis. Savings can and often should be separated from spending money. For example, you could place money in high-yield savings accounts to acquire and hold funds in an area separate from designated spending money.

When saving, think about how much you will likely need to set aside for an emergency fund. Emergency funds should be readily accessible and should not be invested into time-sensitive investments such as stocks or CDs. Although an emergency fund is often viewed as a type of savings, it should not be your only type of savings. Once your emergency fund is suitably established, start planning for ways to save additional funds. In general, saving money provides a lower amount of risk than investing.

Make an investing plan

Once you have a certain amount saved, examine what and how you will need to invest. People tend to invest differently depending on factors such as where they are in life. For example, people in their 20s generally take on more ambitious investments and portfolio diversification that brings more risk. In contrast, older individuals will often have less aggressive and more dependable investments such as bonds and CDs. 

Before investing, analyze your main goals such as 5-year and 10-year plans and research options that will likely assist you in achieving such goals. 

Frequently Asked Questions 

Q

What are the downsides to placing money in a CD?

A

Placing money in a CD is considered safe. However, it is important to keep in mind the drawbacks of CDs. For example, the funds placed into CDs usually cannot be removed early without facing penalty fees. For this reason, it’s advisable to buy a CD after already establishing an emergency fund. An emergency fund should be able to cover a minimum of three months worth of expenses and living fees. Remember to increase the amount provided to your emergency fund as the cost of your living increases. A CD should not be considered an emergency fund or an easy way to obtain funds. Emergency funds should be kept liquid so that the money is accessible during unforeseen expenses. 

 

Although CDs are a safe option for protecting your deposit, certain individuals might find a CD limiting because of the set term lengths. Term lengths between three months and 10 years can limit the amount of freedom that a person has in terms of withdrawing funds. Only place funds into a CD that you will not need to use for an extended amount of time. 

Q

Are CDs or stocks Safer?

A

CDs are considered the safer option. Stocks and CDs have different timelines in terms of growth. Although it’s possible to earn good returns when trading stocks, you also face much higher amount of risk. Stocks trade off potential reward for risk of losing principal. 

 

In terms of risk, stocks carry a higher amount of risk for investors because it’s possible to lose the entire investment if a stock performs poorly. Investment performance is not guaranteed, and stocks can be volatile. 

 

In contrast, CDs safeguard your deposited amount and provide small but dependable interest throughout the chosen term lengths.

 

Overall, CDs are the far safer option that adds certainty to finances. Consider your level of risk tolerance before buying stocks. 

Q

What is the purpose of a CD account?

A

The CD account helps individuals save money by placing a single deposit into the account for a predetermined amount of time. 

 

CD accounts have better yields that incentivize individuals to put away their funds for an extended period. Once funds are placed into the account then they cannot be accessed like a typical savings account.

 

In addition, the account has a wide variety of terms and account options. CDs with longer stated term lengths usually have better rates to try and entice individuals into leaving funds in the accounts for longer periods. 

 

Q

What’s the difference between a typical savings account and a CD?

A

CDs usually grow funds at a higher rate than regular savings accounts. CD accounts can be viewed as better in terms of protecting and growing your initial investment. In contrast, savings accounts do not lock away funds like CD accounts. Savings accounts offer more freedom and allow individuals increased access to their funds. When deciding between a CD account and a savings account, consider if you will need to access the funds on a frequent basis. 

Q

Are CDs considered taxable?

A

Yes. The IRS considers interest and dividends as income. The interest earned from a CD is considered income, which means individuals will likely need to pay taxes on that amount. Interest can potentially be taxed at both a federal and state level.